The 3Ps Push the Dollar Higher

The US dollar continues to recover this morning on the aftermath of the 3Ps – Paulson, Plosser and price of oil. Oil prices are trading on the $125 handle and since last Monday they have fallen more than 14 percent. If oil prices reach $100 a barrel, half of the Fed’s problems would be solved; Consumers would become more liberal with their spending while businesses would become more optimistic.

As for Plosser and Paulson, the Fed President called for interest rates to be increased sooner rather than later, reminding the traders that the Fed still has their eyes on a rate hike.

US Treasury Secretary Paulson was confident that Congress would approve his housing rescue plan this week and so far they are moving forward as planned, with some adjustments.

Paulson proposed increasing Fannie and Freddie’s credit line with the Treasury and permission to buy stock in the mortgage giants. The deal that is likely to come out of the House and Senate would permit the government to inject billions of dollars in Fannie and Freddie and to insure up to $300B in refinanced mortgages. The plan is up for vote at the House of Representatives today.

Meanwhile EUR/JPY has hit another record high and is trading within a whisker of 170. Here’s my explanation of why EUR/JPY has performed so well over the next few months.

Finally, keep an eye on the Beige Book report of business activity which will tell us how the US economy is faring.

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