Given the amount of pessimism built into dollar valuations, there is scope for a significant corrective rally

Selling accelerated once European markets closed pushing the currency to fresh record lows against the Euro. The break of 1.50 triggered stop-loss selling and there was a fresh Euro peak near 1.5090 in Europe.

The US data remained generally weak with a particular focus on consumer confidence which weakened sharply to 75.0 in February from a revised 87.3 the previous month. This was the lowest reading for over four years while the expectations index dipped to the weakest level since 1991 which will continue to fuel recession fears. The Case-Shiller index recorded a 9.1% decline in house prices in the year to December, although this was slightly better than expected.

Elsewhere, producer prices rose 1.0% in January with a core 0.4% increase in prices which will maintain concerns over inflationary pressure. For now, markets will be concentrating on the growth risks and the testimony from Fed Chairman Bernanke will be watched very closely on Wednesday. Bernanke will struggle to find a tone which will boost confidence in the US economy with expectations that the Fed will be forced to cut interest rates further.