The euro moved lower vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.2725 level and was capped around the $1.2825 level. Group of Seven policymakers convened this weekend and focused on tackling the global economic recession. European Central Bank President Trichet reported have said that I did not exclude additional non-standard action, but no decision has been taken yet on top of the non-standard action we have already decided to do and we will see. G7 policymakers repeated their usual mantra about exchange rates. Notably, however, the Group of Seven changed its rhetoric in dealing with China's yuan. The communiqué read We also welcome and appreciate the prompt macroeconomic response from others throughout the world. In particular, we welcome China's fiscal measures and continued commitment to move to a more flexible exchange rate, which should lead to a continued appreciation of the (yuan) in effective terms and help promote more balanced growth. U.S. Treasury Secretary Geithner commented on Sino-American relations, saying We very much welcome the steps they've taken to stimulate domestic demand, and we welcome their commitment to continue further evolution of their exchange-rate system. In other U.S. news, General Motors and Chrysler will submit their latest plans to the government by tomorrow to show how they can again become viable business entities. In eurozone news, ECB member Tumpel-Gugerell reported We are revising our forecasts for 2009 and 2010. In December, we were still acting on the assumption of -0.5 per cent for the eurozone. For 2010, growth of 1 per cent was assumed. But since then a lot of things have changed. Revised forecasts will be released next month by the central bank. ECB member Stark added Gradualism has remained a critical aspect of our monetary policy. Overly aggressive reductions in our policy rate when we cannot see any risk of deflation would exacerbate and not resolve uncertainty. Euro bids are cited around the US$ 1.2475 level.

¥/ CNY

The yen appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥91.40 level and was capped around the ¥92.05 level. Finance minister Nakagawa faced criticism levied over the weekend that he was inebriated at a Group of Seven event in Rome, another blow to the embattled administration of Prime Minister Aso who now has a favourable rating below 10%. The Liberal Democratic Party that has had a 50-year stranglehold on Japanese politics will face a stiff challenge in this year's election. Bank of Japan's Policy Board convenes this week and could announce new or expanded measures to purchase Japanese assets and lower market interest rates. The big news out of Japan overnight was a 3.3% q/q decline in economic growth in Q4 2008, right around a 12.7% annualized decline. Kyodo reported Japan is planning an extra ¥20 trillion stimulus package. The Group of Seven's weekend communiqué from Rome reconfirmed policymakers' position that they will cooperate in countering rapid movements in exchange rates. Other data released in Japan overnight saw revised December industrial output off 9.8% m/m. The Nikkei 225 stock index lost 0.38% to close at ¥7,750.17. U.S. dollar offers are cited around the ¥104.15 level. The euro moved lower vis-à-vis the yen as the single currency tested bids around the ¥116.50 level and was capped around the ¥117.75 level. The British pound moved lower vis-à-vis the yen as sterling tested bids around the ¥129.60 level while the Swiss franc moved lower vis-à-vis the yen and tested bids around the ¥78.25 level. The Chinese yuan appreciated vis-à-vis the U.S. dollar as the greenback closed at CNY 6.8249 in the over-the-counter market, down from CNY 6.8392. Data released in China overnight saw January foreign direct investment off 32.6% to US$ 7.54 billion.

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