There’s no doubt investors are chomping at the bit to take on more risk.  Yesterday the US equity markets rose for a third day making it easy to forget the recession is still deepening in most countries including the US.  A major factor leading to the stock market increases is increasing confidence the US banks are more stable now or have at least hit bottom.

The problem is the toxic assets are still sitting on the bank balance sheets.  Yesterday US Treasury Secretary Tim Geithner faced an angry Congressional committee.  The reason for the anger was the fact the Treasury Department has yet to present details on how the toxic asset problem will be resolved.  Mr. Geithner had no solid answers.

With signs of strength in US banks, which were welcomed by countries around the world, Wall Street rallied.  The US dollar weakened against the euro to $1.2922 per euro.  It also weakened against the Australian dollar to 65.40 cents and the New Zealand dollar to 52.01 cents.

The US dollar did strengthen by 2.5% against the Swiss franc largely due to a Swiss central bank announcement it was prepared to buy foreign currencies.  In addition the bank reduced its benchmark interest rate to .25%.  The main Swiss concern is a fear deflation is possible given the country’s current economic conditions.

The US dollar strengthened to 1.1873 francs per dollar.  The franc fell to 1.5342 francs per euro while holding firm against the yen at 82.19 yen. 

The yen is embattled right now and hit an almost two month low against the euro.  As the stock markets shows signs of rebounding (no one knows if it is going to be lasting), risk appetite has increased.  The yen weakened to 126.25 per euro.   Japan’s economy has reported an economic contraction that reflects the fastest rate among developed nations.  There is speculation that Japanese investors will be repatriating foreign earnings before the end of the fiscal year on March 31.

Australia and New Zealand dollars are benefiting from a rise in commodity prices.  Since commodities account for over half of the nation’s exports, price increases have a positive effect on currency values.  The rise may continue for a few more days.  Both countries also have higher interest rates compared to Japan and the United States, so investors seeking larger returns are naturally looking at Australia and New Zealand for higher yielding assets.

The UK pound fell against the US dollar, euro and yen.  It fell to $1.3751 pounds per US dollar; to 92.94 pence per euro; and to 132.40 yen per pound.

The UK economy continues a dreadful slide downward despite ongoing efforts by the Bank of England to reverse the trend.  The Bank of England is buying UK government bonds or gilts in a policy of quantitative easing.

The currency markets are quite volatile right now as investors confront markets that are still not responding with any predictability.  Though investors are showing some signs of risk appetite, the recession is far from over.  In fact there are continuing concerns over the Eastern Europe debt status, continued increases in unemployment numbers in developed nations, and the massive amount of debt being incurred in the US.

China flexed its financial muscles yesterday by raising concerns about the ability of the US to pay its foreign debt owed China.  That’s the same concern being expressed in the US as the country faces an annual budget with a multi-trillion dollar debt.  US President Obama and Treasury Secretary Geithner have stated they are moving as quickly as can be expected to implement financial policies responding to the economic crisis.

It seems there are lots of investors around the world who do not agree.