The dollar declined against all of the G10 on a slight uptick in risk appetite. The EurUsd rose 163pips seeing resistance at 1.27, while the UsdJpy picked up 60pips to low range of 94. The GbpUsd gained 120pips to the low 1.43 price area, consistent with the recent trend of markets driven by risk sentiment. Equity markets were mixed with no significant moves to the upside or downside in the US and Europe. The major US Stock indexes didn't see a move outside the range of 1%, despite strong corporate earnings announced early in the session. Commodities were mixed with oil up 7% at $37bbl, and gold off 1.32% at $972oz. There was light selling of bonds across the UST curve, with latter portions (10yr and 30yr) seeing the most pressure.

During the European session, German Chancellor Merkel signaled that Germany will form a Europe's largest economy plans to help ease the predicament of various member states under pressure. Currency traders speculated on this news pushing the euro higher against the dollar. Italy's December exports declined 5.5% yoy and imports dropped by 10.3% yoy as global trade continues to contract. Meanwhile, the Dutch unemployment rate was unchanged at 3.9% and consumer confidence remains weak at -11. The situation in Eastern Europe remains precarious and could worsen as debt obligations come due. We believe there is little cause for optimism just yet. UK reported a 3.3B pound budget surplus in January, the smallest since 1995 as the financial crisis ravaged bank profits and the recession worsened. The news put a halt to the cable's rally.

In the US, the latest FOMC minutes showed that the Fed projected a long-term inflation goal of 1.7-2.0% and a larger drop in GDP of 0.5%-1.3% in 2009. President Obama outlined the housing plan which aims to stem housing foreclosures. The plan is expected to take effect on March 4. Similar to the stimulus plan the bank bailout plan, the housing plan will take time to make an impact. We expect risk aversion will remain and keep the dollar firm. Data released today include PPI, initial jobless claims, leading indicators and the Philadelphia Fed business outlook survey.


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