The USD began the week in a difficult position on the foreign exchange market. It opened on Monday in a sharp decline against the JPY and completely stagnant against the EUR.Indeed, the foreign exchange market seems to reflect a general, widespread doubt that President Obama’s new resuce plan is able to revive the U.S. economy. Moreover, the amount of the plan, even though it was revised downwards late last week to 780 billion dollars, also raises concerns on the part of traders who question the long-term ability of the U.S. economy to finance the national debt.

The economic recovery plan should be finally passed by the Senate. After the lengthy negotiations during last week the Senate is in the process of finding a compromise with the House of Representatives. It is projected that this compromise will amount to a $819 billion rescue plan.

Later today (16.00 EST) the Treasury Gecretary, Tim Geithner, will make a statement specifically outlining the scope of the bank resuce plan.

The financial markets expect that Mr. Geithner will announce the creation of a “bad bank”, sometimes called a ‘toxic bank’. This bank will be supported by the U.S. government and it’s mandate will be to which would be mandated to purchase the irretrievable debts of private banks in a move to unblock the credit market.

However, the foreign exchange market could be quickly disappointed because, according to rumours in the American press, the toxic bank idea has been abandoned in favor of introducing a mechanism to encourage private investors to buy the assets of the struggling banks. If these rumours are confirmed, the intense disappointment will be felt on the foreign exchange market and is likey to lead to a weaker dollar tomorrow.

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