by Darrell Jobman, Editor-in-Chief


The dollar was confined to narrower ranges on Tuesday as markets struggled to find fresh direction. The US currency found support close to the 1.5250 level against the Euro, but was unable to make headway much beyond 1.5180.

In comments on Tuesday, Fed officials referred to inflation risks, but the overall impression given was still that supporting the economy would have to take priority in the short term.

The PMI index for the services sector fell very sharply last month and was an important warning sign that the economy could be deteriorating rapidly. The February reading on Wednesday will, therefore, be important to assess whether there has been any rebound.

Markets are already shifting heavily towards pricing in an interest rate cut of 0.75% at the March FOMC meeting. A further PMI deterioration would intensify this speculation and would tend to keep the dollar on the defensive while any move back towards the 50.0 level would provide some significant relief.

Employment evidence will also be watched closely in the ADP report and the Fed’s Beige Book which are both due for release on Wednesday.

European officials continued to protest against the Euro’s strength on Tuesday, although the rhetoric was still controlled and offered no immediate suggestion that intervention was being considered. There will still be caution over Euro buying at current levels.


Source: VantagePoint Software, Market Technologies, LLC


The yen stabilised just weaker than the 103.0 level against the dollar in Asian trading on Tuesday in a limited correction from recent rapid gains.

Japanese officials stated some concerns over the yen with Economy Minister calling the currency gains very rapid while Finance Minister Nukaga stated that the movements were being watched closely. Further warnings are realistic in the short term, especially if the yen threatens to strengthen beyond the 102.0 level.

Nevertheless, the protests have still been relatively mild and do not suggest at this stage that the authorities will look to push the yen sharply weaker. The attitude on any gains towards the 100 level will be very important for medium-term currency trends.

Risk aversion tended to increase during the day on further fears over mortgage-related debt write-downs. This temporarily pushed the dollar back below the 103.0 level before a recovery to 103.40 as Wall Street rallied.


Sterling was unable to sustain gains beyond the 0.7650 level against the Euro on Tuesday and drifted to lows around 0.7670 as sentiment remained generally weak. The UK currency was generally trapped in a 1.9810 – 1.9880 range against the dollar.

The services-sector PMI data will be very important for Sterling sentiment on Wednesday, especially with underlying fears over consumer spending trends. If the PMI index dips towards the 50.0 level, then pressure for more aggressive Bank of England interest rate cuts will increase. The Bank of Canada decision to cut rates by 0.50% on Tuesday is also likely to create additional speculation over a UK move.

There was a further small increase in inter-bank rates on Tuesday and any further widening in spreads would increase pressure for the Bank of England to compensate with a cut in official rates.

Swiss Franc

The dollar was unable to hold above the 1.04 level on Tuesday and weakened back to lows below the 1.0350 level while the Swiss currency also moved to test levels beyond 1.5750 against the Euro.

The Swiss currency continued to gain support from elevated levels of risk aversion in global markets as fears over credit-related losses continued. A tentative Wall Street rally pulled the franc away from peak levels with a retreat to 1.0380 against the dollar.

Fourth-quarter GDP rose a stronger than expected 1.0% which will underpin confidence while the February monthly consumer prices increase was slightly lower than expected at 0.1% for a 2.4% annual increase.


Source: VantagePoint Software, Market Technologies, LLC

Australian dollar

The Australian Reserve Bank increased interest rates to 7.25% following the latest meeting, but the statement with the decision was more dovish than expected. The bank stated that a substantial amount of tightening was now in place while there were signs of moderation in demand which suggests rates may have peaked.

The latest retail data was also weaker with sales unchanged for February compared with expectations of a 0.5% monthly increase. The data and central bank comments triggered more extensive profit taking with lows around 0.9260.

The Australian dollar will also tend to be undermined by the increase in risk aversion as underlying credit fears persist and there was a retreat to 0.9220 as commodity prices retreated.