Risk appetite dispersed overnight largely on comments from Chief Finance spokesman for Chancellor Merkel's party that it would be a very daring experiment for Greece to attempt a rescue without the IMF.  The market is becoming increasing conscience of the need for Greek to roll over a significant amount of debt this spring.  While this month's 10 yr bond sale was 3 times oversubscribed, it is clear that Greece cannot afford to keep on issuing debt at rates which have this year been demanded by the market.  These sentiments were reiterated by PM Papandreou today though he again blamed mkt players for pushing up the cost of debt and made no reference to the years of poorly managed fiscal policy.   Recent hopes that Greece may have avoided a deepening in its fiscal crisis now seem premature.  The EU summit at the end of this month and forthcoming Greek bond sales will be prime foci for Greece and the EUR in the weeks ahead.  EUR/USD hit a session low of 1.3650 this morning, finding some support from the comments to the European parliament from PM Papandreou.  As long as the threat that the fiscal crisis in Greece could deepen, EUR/USD is likely to head lower.

The yen also found support overnight on the back of risk aversion connected with Greek concerns.  Also, reports in the Chinese press that the authorities are trying to quash land and currency speculation kept alive fears over imminent policy tightening from the PBOC.  Some yen buying linked to end of year yen repatriation has also been reported.  That said USD/JPY was squeezed higher in London hours having touched a session low of 89.76.  EUR/JPY simultaneous pushed off its session low.  Offsetting yen demand is the awareness that the BoJ's position of increasing monetary stimulus is increasing in contrast with the policy of most other central banks.  

Cable has had another choppy session.   The realisation that yesterday's apparently better than expected labour data was not as good as it seems allowed GBP to drift lower during Asian hours.  Another short squeeze lifted cable back to USD1.5325 on better than expected UK public finances data.  February public sector borrowing totalled a lower than expected GBP12.4 bln and followed a downward revision to January's deficit.  For the market, however, this is not all good news.  It is likely to provide the Chancellor with a little room to announce pre-election spending sweeteners in next week's budget which will not go down well with the pound.  It may also increase the government's standing in the opinion polls which again increases the uncertainty and doubt in the market as to whether the budget deficit will be the top priority after the general election.  Cable's failure to breach the USD1.5325 area this morning suggests a lower bias may re-establish itself this afternoon.  

Better than expected Swiss Q4 Ind prod data (+6.4% q/q) has underpinned the view that the recovery is becoming well established.  That said the -0.1% m/m drop in Feb exports may heighten the SNB's fears that CHF appreciation could damage the economic recovery.  EUR/CHF pushed down to a low of 1.4460 this morning before retreating back to 1.4485 in European hours on fears of intervention.  USD/CAD has not been able to push below yesterday's low near CAD1.0072 with the softer tone in oil overnight (on the back of lessened risk appetite) weighing on the CAD and on the AUD.  
US CPI data, initial claims, current account, Philly Fed and leading indicators are due today.  The Fed's Hoenig (FOMC voter) and Lacker (non-voter) are due to speak.  
Jane Foley
Research Director