The euro strengthened against the dollar by 1.53 cents on Friday, to close the day at the 1.2824 level and in the process posted gains of 0.37 cents on the week. Fears about the strength of both the dollar and the US banking sector led investors to sell the dollar and lock in profits from its recent strength before the weekend. Fears that Washington could be forced to nationalise some of the largest US banks surfaced after US Senate Banking Committee Chairman Christopher Dodd said that it may be necessary "at least for a short time". Some traders have taken this news as a suggestion that the US government will not allow any more banks to fail and as such risk appetite improved, despite falling stocks, which saw the dollar's safe haven bid eroded.
In today's trading the dollar has continued to weaken after it was reported that Citigroup is in talks that would see the US government take a large amount of its common stock. The Wall Street Journal stated that the government could end up owning as much as 40% of the struggling financial giant, although Citigroup executives hope to limit this share to 25%. This report has had the effect of further diminishing risk aversion and as a result investor demand for the dollar has fallen. The euro has also benefited from the suggestion that a plan may be implemented to help the ailing Eastern European economies after comments from Germany's foreign minister on Friday.
The only major announcement today comes from America where the Fed's Dennis Lockhart will make a speech. However, at the forefront of investors’ minds will be details yet to emerge of Obama's planned government spending. In an address to Congress tomorrow, followed by the outline of his first budget on Thursday, Obama will explain how he plans to cut the US budget in half by 2013, whilst pressing ahead with his plans to tackle healthcare, education and the environment. Some are skeptical that this can be done, especially as the government has now committed a staggering $3 trillion to aid the stricken banking sector, around $2 trillion of which will come from borrowing.
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