The Euro was unable to gain any significant support ahead of the European interest rate decisions on Thursday with the Euro again unsettled to some extent by fears over the Eastern European outlook. Libor rates were also firmer which provided some dollar support with the Euro trapped near 1.28.

The ECB left interest rates on hold at 2.0% following the latest ECB council meeting which was in line with market expectations. In the press conference following the decision, Chairman Trichet was generally downbeat over the economic outlook with a warning over an extended downturn while he also stated that inflation pressures had weakened further.

Trichet give clear hint that rates were likely to be cut again at the March council meeting. Although he appeared to retract comments which suggested that rates would probably be cut by 0.50%, markets will be expecting a cut in rates to a record low of 1.50%.

The US data had a generally weak tone, although the market impact was limited. Jobless claims rose to 626,000 in the latest week from a revised 591,000 increase the previous week which was a fresh 26-year high. The persistently high level of claims over the past few weeks will increase fears over a depressed payroll figure on Friday.

There was also evidence of further stresses within the US banking sector which undermined risk appetite to some extent before Wall Street rallied. The Euro dipped to lows around 1.2760 following Trichet's comments and rallies quickly attracted selling pressure.

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There was renewed caution in Asian trading as equities came under renewed pressure. Bank of Japan member Mizuno stated that the bank must be prepared to act promptly and take unorthodox measures if necessary, although there were no specific policy measures. The yen edged stronger on the crosses with the dollar again trapped within relatively narrow ranges.

The Japanese currency then weakened sharply in US trading on Thursday. Wall Street rallied after rumours that there would be a relaxation of accounting rules while there was also evidence of stop-loss yen selling once it breached the 90.60 level. The dollar peaked above 92.20 before consolidating around 91.30.


Sterling dipped early in European trading on Thursday, but retained a generally firm tone ahead of the interest rate decision. It gained support from a surprise 1.9% increase in the Halifax house-price index for January, the first increase for 13 months.

The Bank of England cut interest rates by a further 0.50% to 1.00% at the latest MPC meeting, in line with market expectations, and took rates down to a fresh record low.

In the statement following the decision, the bank referred to the risks of inflation substantially undershooting the 2.0% target while the outlook for consumer spending was weak and the global economy faced a major slowdown. The bank, however, also pointed to the stimulatory effect of substantial interest rate cuts while warning that Sterling weakness would push import costs higher.

Markets will not be confident that rates have reached their lowest point, but there will be speculation over a period of stability. The UK currency also gained some support from an improvement in risk appetite. Sterling pushed to a high around 1.47 against the dollar and 0.8730 against the Euro later in the US session.

Swiss franc

The franc was trapped in relatively narrow ranges against the dollar for much of the day as the moves were dampened by volatility against the Euro. As risk tolerances improved, the Swiss currency weakened towards 1.50 against the Euro.

Confidence was very fragile in early European trading, but optimism over further global measures to support the economy triggered some renewed selling of defensive currencies.

National Bank member Hildebrand repeated recent comments that the bank does have the option to intervene if there is evidence of deflation which also sapped franc support with the dollar pushing to highs near 1.17.

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Australian dollar

The Australian currency moves were again dominated by degrees of risk appetite, although there was some degree of independent Australian support with a move back towards 0.6450 against the US dollar in Asian trading on Thursday.

The currency will gain some support from expectations of firm gold prices while it will also gain some support from hopes of stabilisation in the Chinese economy even if risk conditions tend to remain dominant. As Wall Street looked to stage a recovery, the Australian currency pushed to highs above the 0.65 level in New York