Simulative government policies are being played out in the market as the USD rose to its highest level against the EUR since February of last year. At the same time poor sentiment is also being thrown into the market as the Federal Reserve announced a new $540 billion lending facility for ailing banks to shore up the money market industry. With the newest government program, the Fed continues to send signals to traders that the financial crisis has not subsided.

Currently, Euro-Zone recessionary fears are helping to drive the USD’s recent gains. The GBP dropped below the $1.6700 level, shedding a whopping 749 points as the Bank of England said the British economy may see its first recession since 1992. The IMF also issued its fall report on the European economy which reaffirmed its recessionary forecast for the British and Euro-Zone economies.

It is perceived that the U.S. economy is better positioned to stave off a recession with a relatively low interest rate to help spur economic growth. A continuation of a poor economic outlook in Europe will continue to work in the Dollar’s favor, perhaps reaching a level below $1.2500 by the week’s end.

We are seeing an environment in which the USD is appreciating across the board. The continuation of economic weakness outside the U.S. and a drop in Crude prices may keep the Dollar heading higher. Traders should look to the UK today as we have seen particular price volatility in the GBP/USD pair.