Major currencies continued to find difficulties in securing a decisive direction during the week as all remained prone to very important weaknesses. Libor rates were generally higher as credit fears increased again. The dollar initially continued to attack three-month highs as defensive demand continued, but then lost support as Wall Street rallied strongly and risk appetite improved.

At the quarterly monetary meeting, the Swiss National Bank lowered the benchmark interest rate by a further 0.25% to 0.25%, equalling the record lows seen during 2003.


The rate decision matched market expectations, but the other actions were more aggressive than expected. The bank announced that it would buy bonds and it also stated that there would be intervention to weaken the currency in another form of quantitative easing.

As well as the warnings over intervention, the bank moved immediately to sell the Swiss franc in the markets with bank Chairman Roth stating that the intervention was designed to stem any franc appreciation. Following the move, the franc weakened sharply to near 1.54 against the Euro and lows around 1.1950 against the dollar.


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The US retail sales data was stronger than expected with a 0.1% headline decline for February as auto sales continued to decline while there was a 0.7% underlying increase for the month. The January trade deficit fell to a six-year low of US$36bn.

In contrast, the jobless claims data was weaker than expected with a further increase to 654,000 in the latest week from a revised 645,000 previously. The four-week average of initial claims was at the highest level since October 1982 while continuing claims was at a record high which continued to indicate major labour-market stresses.

Fed Chairman Bernanke stated that big banks would not be allowed to fail and this may provide some temporary relief to sentiment, especially with Citigroup and Bank of America also providing a reassuring statement, although a high degree of uncertainty surrounding the banking sector continued.

The German trade surplus weaker than expected at EUR8.3bn for January from a revised EUR10bn previously with a 4.4% monthly decline in exports. The industrial data was extremely weak with a further 8.0% decline in factory orders for January after a revised 7.6% decline for December while output fell by 7.5% over the month.

There were generally downbeat comments from some ECB officials. Orphanides, for example, stated that the recent data indicated a worsening outlook and the economy may not even recover in 2010. In contrast, Mersch stated that he was sceptical about excessively low interest rates while Weber suggested that 1.0% would be a floor for rates. The net tone of comments suggested that interest rates would be cut again.

The Swiss National Bank policy move increased speculation that the ECB would also move to non-standard policy measures and direct measures to boost credit.

The Euro generally had a firmer tone, primarily benefiting by default. A lack of confidence in the Euro area was offset by severe difficulties in other major currencies and an improvement in risk appetite with a move above 1.29 against the dollar.

The Japanese currency found support weaker than the 99 level against the dollar and then strengthened sharply to beyond 96 while the yen also regained some ground on the crosses. There was additional speculation over heavy capital repatriation ahead of the fiscal year-end which, allied with renewed stock market falls triggered yen gains.


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Confidence remained weak and it quickly lost ground with a move back to beyond 98 while the yen also weakened to three-month lows against the Euro. Following the Swiss move, there was speculation that the Bank of Japan could intervene to weaken the yen.

The UK data offered no support with the BRC recording a 1.8% decline in like-for-like sales in the year to February. Housing activity was at the lowest level since 1978 despite some increase in purchaser interest as credit difficulties persisted.

UK manufacturing output fell a sharper than expected 2.9% in January and it was the steepest quarterly decline on record. There were increased fears over a very sharp GDP downturn for the first quarter of 2009.

The UK goods deficit widened to GBP7.7bn in January from a revised GBP7.2bn the previous month which reinforced fears that trade will not be able to provide any support for the economy. Indeed, exports fell at a record rate of over 9.0% over the latest three months while imports also declined.

The Bank of England bought the first tranche of government bonds under the new quantitative easing policy as benchmark 10-year yields remained near record lows.

Sterling dipped to lows near 1.36 against the dollar, but resisted a test of 26-year lows and rallied back to 1.40 on Friday. Sterling also found support weaker than 0.93 against the Euro. There was no significant improvement in domestic confidence, but increased fears over the outlook in other major economies provided some respite.