The dollar is gently giving up ground against several currencies today as wary speculators try to unravel whether or not the firmer outline of financial aid to Greece over the weekend is enough to remove uncertainty over its funding plight. Meanwhile rampant emerging markets are starting to cool as investors point fingers at the steep ascent through 2010. There also remains a slow gyration away from the Australian dollar and towards the risks associated with a heating Canadian economy making for an interesting commodity market dynamic.

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Euro - Since the weekend package was announced the euro has ranged between a euphoric peak at $1.3690 and a spike lower to $1.3555. Most of the time it has remained between $1.3575 and $1.3600 and on a current view appears poised to break through to the upside. There are nevertheless lingering concerns that the solution for Greece is somehow likely to run into problems at some indefinite point in the future.

However, the first test for Greece went well earlier today after Greece found more bids than usual for its six and 12 month bill tenders. In fact the government allotted slightly more than the €1.2 billion planned sale and issued a total of €1.56 billion in equal amounts at both maturities. The euro reached an intraday high on optimism over the deals peaking at $1.3620 before crashing to the day's low. Following mechanically sound wholesale and consumer price data sets both in line with expectations the euro is trading at $1.3591.

U.S. Dollar - The dollar index is lower although is approaching break even on the session in early New York trading.

Japanese yen -The yen is not paying a tremendous amount of attention to a draft proposal from about 130 ruling Democratic Party of Japan politicians calling for the adoption of several proposals to defeat deflation. The proposal calls on the government to steer the yen perhaps as low as ¥120 against the dollar as part of the measures to stimulate growth and employment. The lawmakers are hoping that their draft will be adopted as part of the manifesto for the Upper House during summer elections and includes a provision to ensure ongoing Bank of Japan and government initiatives to defeat creeping deflationary forces. The draft also proposes a 2% inflation goal for the Bank of Japan.

But today the yen is strengthening versus the dollar and has risen to ¥93.05 from ¥93.41 overnight, while against the euro the yen is also stronger at ¥126.46. Overnight the Nikkei 225 index slumped 1.2%.

Aussie dollar - Speaking before a Senate hearing today, the Reserve Bank's Assistant Governor told lawmakers that the era needing low interest rates was passed and a return to the average level was not far away. The Aussie unit slipped to an intraday low following the comments at 92.25 U.S. cents before rallying. There is also a creeping sense among investors that emerging markets have rallied so far recently that there surely can't be much more left, at least before some consolidation. Still, the Aussie managed to find its sea legs and is sharply off its intraday low to stand at 92.76 U.S. cents.

Canadian dollar -The Canadian dollar is rebounding from earlier weakness to 99.44 U.S. cents to stand at 99.67 cents having rejected Monday's excursion to 99.10 cents. A loan officer survey on Monday indicated easing lending conditions throughout the first quarter of the year. A separate report from the Bank of Canada also showed that domestic businesses expect to raise output over the next 12 months and increases prices at the fastest pace in a decade. Investors are increasingly looking to the central bank for interest rate increases, which could conceivably occur in April although most predict it will hold fire until its June 1 meeting.

British pound - A jump in exports during February helped narrow the trade deficit and indicates a rebound in domestic activity in Britain. A 7.4% annual increase in a reading of U.K. home prices also lends itself to a recovery from recession. Both pieces of news served to underpin the pound and pushed it to $1.5426. It also gained against the euro to 88.12 pence.

Andrew Wilkinson

Senior Market Analyst