The Euro found support below the 1.27 level in Asian trading on Tuesday. The German IFO index edged slightly lower to 82.6 in February from 83.0 the previous month. Although this was a record low, the overall impact was limited with hopes that conditions were starting to stabilise at depressed levels. The Euro-zone industrial orders data remained extremely weak with a 5.2% fall for December to give a 22.3% annual decline.

The Euro was still unsettled by Eastern European tensions as fears over the banking sector persisted. Comments from ECB officials also continue to suggest strongly that interest rates will be cut by at least 0.25% next week. Nevertheless, the Euro is still gaining support from expectations that the ECB will not pursue quantitative easing policies.

The US economic data continued to offer very little relief with the consumer confidence data particularly striking as there was a further decline to 25 in February from a revised 37.4 the previous month. This pushed confidence down to a fresh record low as fears over the banking sector and economy persisted. The Richmond Fed index also remained at historically depressed levels. The Case-Shiller index house-price index fell 18.5% in the year to November, although a separate survey reported 0.1% rise in prices for December.

In testimony to the Senate Banking Committee, Fed Chairman Bernanke warned that the recession could be extended into 2010 if there was no stabilisation in the financial sector. He also warned over the risk of a vicious circle as a weakened demand led to further stresses within the financial sector and banking-sector policies will remain an important focus.

The dollar gained initial defensive support following the comments, but then weakened back to above the 1.289 level as Wall Street attempted to rally from long-term support levels.

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Confidence in the Japanese economy remained very weak with the corporate services index declining 2.2% in the year to January while the latest Bank of Japan minutes recorded that members highlighted the need to control long-term interest rates.

The Nikkei index managed to recover from intra-day lows, but still fell 1.5% over the day with the Topix index at a fresh 25-year low. Overall confidence in the yen remains weaker and the currency is finding it much more difficult to gain safe-haven support. The US currency broke another longer-term technical pivot point around the 95 region in Asian trading with to reach a 12-week high and the currency looked to consolidate above this level in Europe.

The yen remained under pressure during the day even when equity markets retreated. The dollar pushed sharply higher to a three-month high near 97 in New York while the yen also lost ground heavily against European components.


Sterling was unable to push back above 1.46 against the dollar during Tuesday, but proved broadly resilient with support below 1.44. Sterling consolidated near 0.8850 against the Euro as cross-related flows remained important in choppy trading.

The BBA mortgage loan data recorded a small increase for January to 23,400 from 22,400 in December, although there was still an annual decline of over 40%.

The latest CBI retail survey registered a figure of -25 for February from -47 the previous month which suggested that the rate of sales decline was slowing. In contrast, there was a further decline in investment for the fourth quarter. Overall pessimism towards the economy and currency have, for now, eased very slightly.

Swiss franc

The franc pushed to test levels beyond 1.48 against the Euro during Tuesday, but was unable to sustain the gains and weakened to 1.49 in US trading as Wall Street rallied. The franc consolidated near 1.16 against the dollar as cross-currency moves tended to dominate.

The UBS consumption index weakened to 0.99 for January from 1.18 the previous month which suggests that consumer spending levels remain under pressure as confidence deteriorates.

The franc was still unsettled by fears that there would be net capital outflows of Switzerland following the recent ruling against UBS and long-term sentiment has deteriorated.

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Australian dollar

The Australian dollar dipped to test lows below 0.64 against the US dollar in Asian trading on Tuesday. Currency moves will remain correlated strongly with trends in sentiment towards the global economy and underlying confidence will remain very fragile in the short term.

There will be further fears over the global growth outlook, especially if there is any evidence of renewed deterioration in China's economy.

The Australian currency was still able to rally back above the 0.65 level as Wall Street rallied with firm support on dips.