In the currency market, the dollar rallied against the euro. Late Tuesday, the euro was trading at $1.2867 vs. $1.3056 on Monday.

Concurrent with Geithner’s presentation, the Senate voted approval of President Obama’s economic stimulus package, which he touts will save or create up to 4 million jobs.

The $838 billion Senate bill is a mixture of tax cuts, targeted spending on infrastructure projects and money infusions for cash-strapped states, and it must be reconciled with the House’s marginally less costly version before final passage.

The markets don’t think much of this. “Traders have plowed right back into the U.S. dollar on the fear that the U.S. government is rolling the dice once again,” said Kathy Lien, director of currency research at GFT.

The buck’s rally continued the recent trend whereby the currency tends to rise after downbeat news. Lower-yielding currencies such as the dollar will benefit from risk aversion, the reasoning goes. On the flip side, the dollar falls whenever there is more willingness among investors to buy riskier, higher-yielding assets.

The euro was stung when Anatoly Aksakov, head of the Russian Association of Regional Banks, said that domestic banks will ask foreign financial institutions to reschedule loans worth up to $400 billion. High European exposure to Russia makes the euro vulnerable to signs of stress in their eastern neighbor.

Source: Dollar Strengthens