Yesterday's austerity pledges by the Portuguese Finance Ministry may have been timed to deflect speculation that the country could be the next most vulnerable EMU member after Greece.  However, the pledges were insufficient to stop Fitch stating this morning that Portugal may be downgraded if fiscal consolidation is insufficient.  The EUR took a tumble on this news falling back towards the USD1.3580 level.  Even though Fitch also stated that the contagion risk to Portugal and Spain from Greece is not great, there are sufficient worries in the market concerning EMU to keep the EUR on the back foot.  Fitch underpinned concerned that it could not be assumed that Greece would be successful in implementing it budget.  Meanwhile scepticism is rising over how or if the EU can successfully steer through the legal framework to form a European Monetary Fund, while critics are promoting the view that the IMF remains the more appropriate institutions to carry out such a function.  While Greece may have avoided a crisis this spring the market will demand an improved system of fiscal controls and greater prudence from all EMU members going forward.  Until there is clear evidence of progress on the fiscal front, the EUR will be vulnerable to further downside pressure.   

Sterling opened in London on a soft note following a report from Moody's that the UK faces a difficult balancing act in deciding how and when to reduce support for the banking sector. The mood, already vulnerable ahead of the looming general election, worsened on the back of a soft RICS housing market report which suggests that January weakness may be more than weather related and then on a very disappointing trade report which shows that despite the weakness of sterling that the trade position is worsening rather than improving.  Strength in the BRC's Feb retail sales monitor showing that the poor Jan data has been completely unwound was lost in the poor sentiment.  Cable hit a low of USD1.4941 this morning before some short-covering emerged.  The results of the 12 yr gilt auction brought a respectable 2.01 bid/cover.  

The yen has benefitted in line with talk of repatriation ahead of the end of Japanese fiscal year end.  Insofar as there is still speculation that the BoJ could announce more measures to stimulate the economy, and weaken the JPY, at the March 16 policy meeting, the coming weeks promise to be volatile for the JPY.  EUR/JPY suffered a sharp decline back below JPY121.80 on the combination of demand for the JPY and a surge in EUR woes, similarly GBP/JPY pushed back towards 134.00 while AUD/JPY pushed to an intraday low of 81.29.  Selling pressure on the AUD saw AUD/USD retreating towards 0.9060 and was despite another gain in the Australian business confidence index which will promote the view that the RBA could be hiking rates again before the Fed gets out of the traps.  
US ABC consumer confidence data are due this afternoon.  
Jane Foley