Immediate demand for the Swiss franc and Japanese yen will remain lower in the short term, although further heavy selling pressure is unlikely at this stage.

The Federal Reserve interest rate cut this week, allied with the fiscal support package and hopes that a support package can be put together for the US bond insurance companies has had a significant impact in easing global risk aversion levels.

Global stock markets have rallied strongly with particularly sharp gains for the German DAX index.

The latest US and European data has also not supported the case for a rapid plunge into recession conditions. The German IFO index rose slightly to 103.4 in January from 103.0 previously. US jobless claims were again lower than expected at 301,000 in the latest week from a revised 302,000 previously. Existing home sales fell by 2.2% to an annual rate of 4.89mn, although prices were little changed and inventories fell back to below 10 months supply.

The easing of fear has weakened short-term demand for the yen and Swiss franc. From highs near 105.0 against the dollar, the yen has weakened to test levels beyond 107.50 while the Euro has regained ground strongly against both currencies. Caution will prevail, but the yen and Swiss franc probably saw important medium-term peaks this week.