The US dollar rose against the Japanese Yen on safe haven demand and remarks by Federal Reserve Chairman Ben Bernanke. Forex traders sought the safe haven of the dollar due to concerns about the US banking system. Forex traders also paid heed to Bernanke’s remarks to the US congress calling for resolute action by the government to pull the US out of the ongoing recession. Many Forex traders and investors are betting that the US will be the first nation to recover economically from the recession.

Dan Cook of IG Markets in Chicago stated, “The dollar is in great demand because of high risk aversion. There is still a lot of market uncertainty, a lot of volatility in the stock market. And the more uncertain it is, the better it is for the dollar.” Forex traders were concerned about insurance giant AIG posting the biggest quarterly losses in US history. The government recently gave AIG an additional $30 billion dollars and AIG was the recipient of earlier bailouts.

The US dollar rose to 98.24 against the Japanese Yen in late trading, The Euro was down and was trading at $1.2571. Equity markets rose earlier on Wednesday but fell due to dismal data from the US housing sector and a bleak outlook for the banking sector. The stick market was also concerned that Treasury Secretary Timothy Geithner failed to provide exact figures on how much it will cost the government to stabilize financial institutions. All of these factors sent Forex traders to safe haven currencies.

Forex traders and forex markets are also waiting for details of the ‘bad bank’ plan which would provide details on how banks would shed toxic assets. Melvin Harris of Advanced Currency Markets in New York stated, “People are awaiting this ‘Bad Bank’ plan. They’re looking for details … and how banks can start over. Once that happens, we’re going to see a complete reversal in dollar strength.”

Forex traders expect the European Central Bank to cut rates to a historic low of 1.5%. The Euro was pressured by concerns about struggling Eastern European economies. The only bright spot seemed to be the Aussie dollar which rose 1.5% against the US dollar.

This week promises to be a very volatile one on currency markets and Forex traders are expected to have one of the busiest weeks ever.