Dollar rallies sharply over rescue plan

The US dollar rallied sharply as lawmakers finally unveiled a compromise $700bn government rescue plan to shore up ailing financial markets.

The deal requires limits on executive pay as well as breaks up the total $700bn sum into several payments: the Treasury would get $250 billion right away, another $100 billion subject to presidential approval, and the final $350 billion subject to a Congressional certification of approval. However, Asian stock markets and US index futures saw sentiment turn sceptical late into the overnight session, meaning forex traders could see significant volatility as European markets react to the announcement.

The US dollar rallied sharply as EUR/USD gapped 64 pips lower from last week's close at 1.4610 to open at 1.4546 this morning and raced lower to test the 1.45 level. A break lower eyes support at 1.4431, with support-turned-resistance at 1.4551.Sterling fell in with broad greenback strength GBP/USD lost nearly 150 pips to find a near-term bottom at 1.8270, a pivot level. A break lower sees support at 1.8199 being broken this morning, with support-turned-resistance at 1.8342.

Key data releases are expected to come in along a predictable trajectory, Euro Zone Economic Confidence data due out today is set to decline to 87.2 in September, the lowest in seven years. Acute economic slowdown has been a continuing theme in for the 15-nation currency bloc in recent months and traders will be paying acute attention to the European Central Bank interest rate announcement due on Thursday, with the rate expected to remain at 4.25%.In the states consumer confidence figures for September are due out tomorrow and are likely to fall from 56.6 in August to 55 reflecting ongoing deterioration in the American housing market and rising unemployment currently running at 6.1%

In the UK the government was last night preparing to nationalise Bradford & Bingley and was in advanced talks with Santander of Spain which is interested in buying B&B's deposit book and branch network. Meanwhile Fortis looks likely to be the largest Euro zone casualty of the crisis, the group a giant of the Belgian and Dutch financial landscape has been the latest focus of investor fears about the stability of the industry.