The US dollar weakened on the back of better than expected demand for Portuguese government bonds at today's auction, boosting euro sentiment. Dollar weakness may be short lived as fears of a European contagion are still at the forefront of investor's minds. It is very possible that we may see the return of market fears driving the euro lower as was evidenced last summer.

The euro climbed out from under a recent dearth of mainly dollar positive data; though gains are expected to be short-lived after the Portuguese debt sale did little to quell fears that some of the indebted Eurozone countries will struggle to meet their funding needs for the year. Attention now turns to Spain and Italy, who will sell debt tomorrow in auctions that will also be closely watched for any sign of an expanding debt crisis. Belgium is now also included in the firing line due to political instability, having been without a government for the past 7 months. The King is now involved in bringing an end to the stalemate. Traders still expect the euro to retest its Monday lows, with a break below likely opening the door to a decline towards $1.2645 and $1.2590 in the coming weeks.

Also bolstering the euro were comments from Eurozone sources that finance ministers are likely to consider next week raising the effective lending capacity of the currency bloc's rescue fund as part of efforts to calm jittery markets. If finance minister continue to downplay the debt problems, then it suggests that officials are getting further behind the curve, which would undermine the currency.

The British pound climbed to a one-month high against the dollar as steady buying from Asian sovereign accounts helped to offset the impact from data which showed Britain's trade deficit widening to record levels.

Britain's trade gap widened to 8.736 billion pounds in November from an upwardly revised 8.591 billion pounds in October. Imports of oil and aircraft pushed the trade deficit to its biggest since monthly records began in January 1980, contrasting with expectations for a modest narrowing.

Today begins the two-day BOE Monetary Policy Committee meeting where inflation expectations are likely to dominate the discussions though no rate hike are anticipated until August at the earliest.

The Japanese yen remains range bound against the majors.

The Canadian dollar extended gains against the USD, rallying to a fresh 21/2 year highs after breaking a key resistance level, boosted by a global risk rally and talk of domestic rate hikes. A broadly softer greenback and greater risk appetite with rising commodities and equities are supporting the loonie's move higher.

The Mexican peso firmed to its strongest levels since October 2008 after solid demand at a Portuguese government debt auction eased concerns about Europe's debt crisis, boosting riskier assets.

Mounting worries that massive floods in northeast Australia could hamper growth were taking a toll on the Australian dollar driving it to 1-month lows against the USD.

Indications of Overnight rates:

EUR/USD

1.3113

USD/JPY

82.99

GBP/USD

1.5767

USD/CAD

0.9848

USD/MXN

12.0432

USD/CHF

0.9685

AUD/USD

0.9950

NZD/USD

0.7618

10-Year Treasury Note Yield: 3.408%

Dow Jones Industrial Average: 11,780.15 +108.43%

This market summary is prepared by Union Bank's Global FX Department for the general information of its customers. It is based on the most accurate information currently available, but should not be considered investment advice or a guarantee of future exchange rates or trends.