The US dollar rally against a basket of currencies after better than expected US trade deficit data was short lived. The trade deficit narrowed 9.7% in January to $36 billion as both imports and exports tumbled for the sixth consecutive month. The dollar rally ended as stocks were set to open higher on news that Citi will not need any more capital injections from the government. On Thursday, Citigroup Inc’s Chairman Richard Parsons expressed confidence that Citi would remain in private hands and they are one of the better capitalized banks in the world. This announcement brought a glimmer of hope for investors that big US banks may be turning around, thus pushing US stock futures and global stocks higher.

As the Group of 20 leading industrialized nations convenes today and tomorrow, market players will be keeping an eye on policymakers.

The euro strengthened against the dollar and yen as global equity markets rallied and Swiss National Bank announced an intervention yesterday. The euro rally was broadly supported by SNB’s unconventional policy measures to purchase the euros and dollars on Thursday in an attempt for quantitative easing to weaken the Swiss franc. On the data front, Euro Zone retail sales fell more than expected year-on-year in January to 2.2%

The British pound strengthened against the dollar as risk-averse investors began to let their guard down on positive sentiment in European stock markets. As equity markets stabilize, investors’ appetite for riskier assets stabilize thus boosting currencies such as the pound. Yesterday, Bank of England announced to buy another 5 billion pounds as part of their next move for quantitative easing.

The Japanese yen strengthened against the dollar overnight, but erased most of those gains as Bank of Japan injected $1.2 billion dollars into three banks. BOJ Governor Masaaki Shirakawa warned of the recession worsening, and promised a new stimulus plan within weeks. People have begun to question whether the Japanese authorities will intervene in foreign exchange markets through unconventional policy measures, though most analysts see it as unlikely. The last time Japanese authorities intervened was March 2004 when they went on a 35 trillion yen ($359 billion) selling spree to prevent a stronger yen.

The Canadian dollar weakened against the US dollar as negative economic news was released from Canada. However, those losses were recouped as US stocks rally on hopes of big US banks turning around. Data from Statistics Canada showed net job losses totaled 82,600 in February pushing unemployment rates to 7.7%. Finance Minister Jim Flaherty said he expected job losses to continue for several months to come and will experience a difficult 2009. To stimulate the economy, the Canadian government plans to spend around C$20 billion ($16 billion) this year.

The Australian and New Zealand dollar strengthened against the greenback as risk-averse investors began dabbling in riskier assets. The Aussie is also up in part due to SNB’s move to purchase the Swiss franc. The kiwi was buoyed mostly by the central bank’s signal of slower interest rate cuts the previous day.

Indicative rates:

EUR/USD 1.2986

USD/JPY 97.95

GBP/USD 1.4109

USD/CAD 1.2600

USD/MXN 14.6250

USD/CHF 1.1835

AUD/USD 0.6644

NZD/USD 0.5309

USD/DKK 5.7600

USD/SEK 8.5880

USD/NOK 6.8134

USD/TWD 34.410

USD/CNY 6.8350

10-Year Treasury Note Yield: 2.925%

Dow Jones Industrial Average: 7,226.45 + 56.39