U.S. Dollar and Yen Remain Strong ... Investments of Choice for Those Seeking Safety

Safety was the driving force for investors today, as the announcement by U.S. Treasurey Secretary Henry Paulson that the Troubled Asset Relief Program (TARP) would add to its focus of infusing capital into banks, to also helping nonbank financial sector.

Jittery investors interpreted that as problems are emerging in the attempt to fix the financial crisis.

Immediately after Paulson's comments migrated across the news wires, traders ran to safety in the U.S. dollar and yen.

Even so, the dollar fell significantly against the yen, dropping to 94.61 yen from 97.60.

The British pound took a beating today, falling to its lowest levels since June 2002, dropping below $1.50. Against the euro it suffered its worst performance ever.

Much of that was generated from the comment by the Bank of England that the British economy was for all practicle purposes, probably already in a recession. British economists say there's no doubt there will be more substantial cuts in interest rates in the near future; most likely beginning in December.

The Bank of England confirmed this saying if interest rates stay at the current level of 3.0 percent, there's risk the country could enter into a deflationary period of time beginning in the latter part of 2009.

The European Central Bank has been pouring tons of dollars, Swiss francs and euros into banks in the eurozone in hopes it'll encourage them to lend to one another again. The ECB announced Wednesday it would offer $60.574 billion for a week at a fixed rate of 1.43 percent.

US Dollar Gains against Euro and Pound after Rate Cuts

In response to the weakening European economy, central banks started slashing benchmark lending rates in attempts to jumpstart credit markets again.

While the move of cutting rates by the European Central Bank was in line with expectations of 50 basis points, bringing it to 3.25 percent, the cuts by the Bank of England shocked a lot of investors and analysts, as they cut rates by 150 basis points to 3 percent.

The U.S. dollar responded by strengthening against the two currencies, as at close to 5:00 EST it had gained by .0147 against the euro, and .0126 against the pound.

World Bankers Aiding in Flooding Markets with U.S. Dollars

In a big attempt to release liquidity into the market, the Federal Reserve is getting the help of the Swiss central bank, Bank of England and the ECB, as they are getting together to auction off unlimited dollar funds.

This is unique in history as past dollar swaps were always capped at a certain level. In this case funds auctioned will be unlimited.

Maturity dates for the funds will be offered for 7 days, 28 days, and 84 days for a fixed rate respectively.

These swaps have been one of the reasons the U.S. dollar has continued to strengthen in the last months.

The greenback fell today against the euro and pound, as well as a number of major Latin American currencies.

Today the Dow Jones Industrial Average rose by its highest one-day point total in history, gaining 936 points, to finish the session at 9387.61