St. Louis Fed President, James Bullard said in a speech over the weekend that the Fed should retain the flexibility to respond through continued purchases of mortgage securities in 2010 should it see the need. In conjunction with the views of Chicago's Evans who sees perhaps no change in rates into as far as 2011, investors are today reveling in abundant liquidity and downplaying the prospects for the U.S. dollar. As they do so they are reversing last week's theme of global slowdown. Equity futures have been propelled higher by this confluence of ways once again sending the dollar down the tubes.

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Commodity traders so far like what they are seeing so far today. Gold traded at a fresh record peak at $1,167.80 an ounce, while silver traded at its highest in 16 months and copper reached a 14-month high. That's set the dollar's ambitious rebound plans of last week back sharply and against the euro it's trading lower at $1.4968 after having hit a weak spot at $1.4983 earlier in the overnight session. Against the Japanese yen the unit continues to come a marginal second best and the dollar buys ¥88.83.

Of course the rally in commodities contrasts sharply with events at the tail end of last week when feint-hearted investors were forced out of long positions in the commodity dollars. The lure of higher yields in risky locations has made the Aussie dollar an appealing prospect. With sell orders driving prices down last week on weaker global recovery prospects, the revision to interest rate expectations helped force many investors' hands sending the Aussie hurtling close to 90.50 U.S. cents on Friday. However, the altogether brighter growth scenario this morning - although we're unsure exactly what this looks like - has seen a reemergence of risk appetite that has propelled the Aussie unit all the way back to 92.50 cents.

The British pound too is knocking spots off the U.S. dollar and today buys 1.2 more cents than on Friday. At $1.6628 the pound is higher and it also buys ¥147.78 against the Japanese yen. One plausible reason behind a firmer pound today is that investors may well be relying on last week's strength in retail sales data to deliver a positive upward revision to third-quarter GDP later in the week.

The euro rose earlier in the session following a positive slew of reports covering purchasing managers' intentions. The PMI manufacturing survey at 51, while lower than consensus still indicates expansion while the PMI service sector survey at 53.2 indicates an ongoing health recovery in the sector while the overall composite survey at 53.7 was also above forecast and hints at lesser problems stemming from a strong currency.

Andrew Wilkinson

Senior Market Analyst