Like everyone else, currency traders awaited the Treasury Secretary’s “comprehensive” financial rescue plan, the sequel to the Troubled Asset Relief Program.

“With the focus on the Senate [stimulus package] vote and details of Treasury Secretary Geithner’s TARP plan [due Tuesday], the currency markets are likely remain cautiously negative on the dollar,” wrote Marc Chandler, of Brown Brothers Harriman.

Obama’s chief economic advisor Lawrence Summers tipped Americans to what is coming on Sunday, saying that the bank plan “can’t all be private capital, but with the right kinds of government guarantees and the right kinds of financing, strategic approaches, Geithner believes we can bring in substantial private capital.”

One thing under consideration is creation of a “bad bank,” or “aggregator bank,” that would buy illiquid mortgage securities. It could be partly funded by some of the remaining money from the existing $700 billion Troubled Asset Relief Program fund, but the majority of the funds would come from the private sector, according to a Wall Street Journal report.

And Marketwatch.com wrote that, “The Treasury is reportedly considering using a chunk of the remaining $350 billion in bank bailout funds to make capital injections using a form of preferred security that would pay interest like bonds but would be convertible into common shares after a set period of time, perhaps seven years.

“Banks would have an incentive to buy out the government’s stake before the conversion because once they become common shares the investment would dilute existing common shareholders, lowering the value of the bank’s shares.”

Source: Dollar Slips

This month’s Federal Open Market Committee policy meeting was far less anticipated than earlier ones have been. Interest rates can’t be shoved any lower, and any rise in rates won’t come until inflation picks up. So the accompanying rhetoric was parsed.

To no one’s surprise, the Fed did leave interest rates alone, and in its remarks said that it will remain committed to a credit easing path and is prepared to buy U.S. Treasuries if that seems warranted.

Further, the Fed admitted the economy is weakening, and that it is worried about deflation, but it still expects a recovery in the second half of the year.

Traders felt the statement was more significant for what it didn’t say that what it did. The Fed did not detail any of the non-conventional easing methods under consideration.

That was significant, according to Marc Chandler, of Brown Brothers Harriman, who wrote that, “We had anticipated that any new details on quantitative easing would have been dollar-negative.”

Kathy Lien, director of currency research at GFT, added that, “In the long run, the Fed’s lack of commitment is still dollar bullish. More action will be needed and delaying the inevitable could hurt more than it helps.”

Source: Dollar Rises After FOMC Meet

It wasn’t so much that the buck soared as that the euro got slammed by news that Standard & Poor’s might cut its ratings on Spain, and by growing expectations that the European Central Bank will cut interest rates later this week.

“At the end of last week, the rating agency S&P put Greece’s long-term sovereign rating on credit watch for a possible downgrade. [Yesterday] it did the same for Spain,” said Marc Chandler, of Brown Brothers Harriman.

“The market appeared to take advantage of the headline announcement to do what they wanted to do and that was take the euro down,” Chandler added.

In addition to the S&P downgrades, there’s been a recent run of abysmal euro-zone data, leading to the ECB expectations. The central bank’s key lending rate now stands at 2.5% with most economists expecting it to be slashed by half a percentage point, or 50 basis points, on Thursday.

Even if the bank does meet expectations, “we would need to see significant flexibility on the part of the ECB to help stabilize the economy and sentiment on the euro,” wrote strategists at BNP Paribas.

Source: Dollar Gains On Euro

“After largely being confined to range trading against the major European currencies in recent weeks, the dollar has broken down,” said Marc Chandler, of Brown Brothers Harriman.

The British pound also gained 2.1% vs. the greenback, while the Swiss franc was up 1.7%.

However, “We suspect that U.S. fundamentals have not deteriorated as much as the price action is prompting the dollar bears to suggest,” Chandler said.

“Instead, we would regard the greenback’s decline as largely technical in nature, relating to profit-taking by momentum traders on the second-half dollar rally ahead of the end of the year,” he concluded.

Analysts awaited today’s interest rate decision from the Fed, with most expecting a cut of the benchmark by half a point to 0.5%, although some are going so far as to forecast a cut of three-quarters of a percentage point, to 0.25%.

“The U.S. dollar is selling off aggressively going into the rate decision as traders realize that after [today], the dollar will either be the lowest or second lowest yielding G10 currency,” said Kathy Lien, director of currency research at GFT. “No matter how you look at it, an interest rate of 0.50% is just as bad as an interest rate of 0.25%.”

Source: Dollar Craters Against Euro

“Today might be the day that marks the beginning of a legitimate U.S. dollar correction,” wrote Jack Crooks, president of Black Swan Capital.

“We’ve been open to this potential for the last several weeks, as we think a lasting correction is due before the U.S. dollar can start on its next powerful leg of what we are expecting could be a multi-year bull market,” Crooks said.

With the election finally over, many analysts are saying the result isn’t likely to be a major driver for currency markets.

“Implied volatility has continued to fall, suggesting the euro could move higher in coming days with market participants likely to look past today’s U.S. presidential elections toward what could be horrendous jobs numbers on Friday,” wrote currency strategists at Brown Brothers Harriman.

The euro surged despite near-universal expectations that the European Central Bank will cut interest rates on Thursday. Also predicted for Thursday is a cut in British rates, but the pound rallied anyway, as well.

Source: Dollar is Hammered

Currency traders were likely distracted by the insane action on the big board, as the Dow and S&P turned triple-digit gains into triple-digit losses before reversing field again and posting solid gains at the end.

With all of the market turmoil, no one is making a call on the buck in the near term.

“We remain extremely cautious in the short run with market conditions likely to remain volatile and, at times, illiquid especially for emerging currencies. Over the long run, we still expect the dollar to trend higher,” wrote currency strategists at Brown Brothers Harriman.

In the day’s hard data, the Labor Department reported that jobless claims rose by 15,000 in the week ending October 18, and the four-week average of continuing claims rose by 44,250 to 3.68 million, the highest in more than five years.

The “underlying outlook for the deteriorating labor market” has worsened, wrote Mike Englund, chief economist for Action Economics. “The ongoing deterioration in the underlying claims trajectory worsens the outlook for the November report, as does the global broadening in the ongoing financial crisis that is inevitably boosting fear among employers.”

“The rise in continuing claims suggests that the unemployment rate moved higher in October,” wrote analysts at RDQ Economics. September’s jobless rate was 6.1%.

Source: Dollar Drops Slightly

The buck strengthened as crude pulled back from highs notched on the back of hurricane fears.

“The foreign exchange market continues to track the oil market closely,” wrote Marc Chandler, global head of currency strategy at Brown Brothers Harriman.

The dollar was also buoyed by a Commerce Department report giving revised second quarter GDP figures. The report said that the economy grew 3.3% in the quarter, as compared with the previous estimate of 1.9% growth. That exceeded economists’ expectations that the revision would show the economy growing at a 2.7% pace in the quarter that ended in June.

However, “There were some cracks in the foundation revealed in the details of the report,” said Michael Darda, chief economist at MKM Partners in Greenwich, Connecticut. “With the G7 economies now slowing sharply, which threatens U.S. exports, and stressed credit markets colliding with weak U.S. labor markets, which threatens consumer spending, the second half of this year is likely to be weak.”

Source: Dollar Gains Against Euro

“The U.S. dollar is broadly higher as the global markets and economy continues to pull back from the edge of the abyss that it was steering into a week ago,” wrote strategists at Brown Brothers Harriman.

The buck also benefited from a day in which the only bad news was the Fed’s Beige Book report, which had only four of 12 regional banks reporting stable, steady or improving growth. And inflation is bad, with all 12 districts reporting that prices are “elevated or increasing.”

Traders shrugged that off, instead looking across the pond, where the euro was buffeted by some poor numbers. Industrial orders across the eurozone posted a 3.5% monthly drop and a 4.4% annualized decline in May, according to Eurostat.

That was way worse than economists’ projections for a 2% monthly fall and a 1.7% annual gain.

Source: Dollar Rallies on Trouble in the Eurozone

“The U.S. dollar is firmer in quiet but choppy trading, helped by what appears to be better than expected earnings from the U.S.’s largest bank,” wrote currency strategists at Brown Brothers Harriman.

The reference was to Citigroup (NYSE:C), which reported a second quarter loss of $2.5 billion. Horrendous in other times, but rosy in a present in which analysts had been predicting losses of nearly twice that.

Traders were likely encouraged that Citi shed $99 billion of its riskiest assets over the past three months.

But some analysts were dismayed that the dollar didn’t perform better this week.

The buck was “influenced by conflicting factors, [but] even the sharp drop in oil prices was not enough to give the dollar strong support, at least not against the single currency,” strategists at KBC Bank in Brussels wrote. “This is slightly disappointing from a dollar point of view.”

Source: Dollar Edges up on Euro

The European Central Bank, at its meeting yesterday, decided to leave its key interest rate at 4%, as expected. However, it was the accompanying rhetoric that caused a stir.

“It is not excluded that, after having carefully examined the situation, that we could decide to move our rates a small amount in our next meeting in order to secure the solid anchoring of inflation expectations,” said ECB President Jean-Claude Trichet.

Trichet’s qualifier—“I don’t say it’s certain. I say it’s possible.”—sounded unconvincing to many.

“Trichet continues to sound the hawkish trumpets, revealing that some on the ECB board wanted to hike rates, and admits that while not certain, the ECB could raise rates next month. This is significantly more hawkish than any expected,” wrote Marc Chandler, of Brown Brothers Harriman.

The ECB’s also released revised staff projections for an average inflation of between 3.2% and 3.6% in 2008, with a midpoint of 3.4%. That’s dramatically higher than the March projections for a midpoint at 2.9%, and well above the ECB’s target of below 2%.

Source: But Dollar, Meanwhile, Hits the Skids – Hawkish ECB Comments Cited