The resurgent dollar soared against a basket of major currencies on Tuesday as Barack Obama took the Oath of Office, becoming the nation's 44th president and first African-American head of state. While Washington DC was euphoric, Wall Street was anything but, as concerns about the global economy fueled risk aversion.
Lower-yielding currencies like the dollar and yen strengthened as traders moved out of positions in the slumping euro and sterling.
The dollar skyrocketed to a nearly eight-year high of 1.3859 versus the sterling, having picked up more than 15 cents in the last two weeks. A move to 1.3675 would bring the dollar to its highest point since 1986 against the sterling.
The sterling was broadly weaker after the Royal Bank of Scotland said tough market conditions in the fourth quarter and mounting impairment charges could push it to the U.K.'s biggest-ever quarterly corporate loss.
Meanwhile, the dollar continued its assault on the euro after the European Commission said the Eurozone economy is expected to contract 1.9% in 2009, down from its autumn forecast of 0.1% growth.
The EC also said that Euro zone inflation will continue to slow. On Monday, ratings firm S&P cut Spain's sovereign debt rating to AA+ from AAA.
The buck also rallied versus the loonie, hitting a 6-week high of 1.2700 before leveling off. The Bank of Canada slashed its key interest rate by 50 basis points to a record low 1 percent on Tuesday, hoping to jump-start the resource-based Canadian economy.
The dollar also hit a 6-week high versus the aussie, rising to .6483.
On the flip side, the dollar drifted slightly lower versus the yen, slipping below the 90 mark for the first time in four days. Just over a month ago, the dollar fell to a 13-year low of 87.15 versus the yen.
The economic calendar will be relatively light this week. Traders are likely to keep an eye on a report on housing starts as well as the weekly mortgage applications and jobless claims reports.
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