The dollar come under aggressive selling pressure against the yen, falling to its lowest level since 2000 at 101.38 as heightened risk aversion prompted a sharp rally by the Japanese currency. Persistent fears of instability in the US financial markets and burgeoning concerns about an economic recession have plagued the greenback. However, the currency's rapid descent has prompted a renewed bout of verbal intervention in an effort to contain further deterioration.

Euro Buoyed

With the euro maintaining its strength near record levels against the dollar, Eurozone officials have stepped up their rhetoric to temper additional appreciation. ECB President Trichet said he was concerned by excessive moves in foreign exchange, adding that excessive volatility and disorderly fx moves are undesirable. He also said that he notes with extreme attention US statement that strong dollar policy is in US interest. Nonetheless, given the barrage of criticism over China's currency regime and accusations of currency manipulation, Trichet's comments are viewed as little more than jawboning rather than a signal of coordinated intervention.

The Eurozone calendar was light at the start of the week, with the release of Germany's January trade surplus, largely in line with consensus estimates at 16.1 billion euros, up from 15.6 billion euros from December. In the coming session, traders will look ahead to Germany's February wholesale price index and the March ZEW sentiment survey. The February WPI is see edging higher on an annualized basis to 6.8% from 6.6% while the monthly report is seen declining to 0.6% versus 1.4%. Meanwhile, Germany's ZEW sentiment survey is expected to worsen to minus 40.0 from minus 39.5 while the current conditions survey is seen deteriorating to 30.4 versus 33.7.

Yen Powers to 8-year High

Heightened risk aversion and more declines in global equity bourses propelled the yen to its highest level versus the dollar since 2000 at 101.38. We expect the yen to continue edging higher with a near-term target of 100.

Economic data from Japan this week will see the minutes from the BoJ monetary policy meeting, Q4 GDP, and January industrial production. The Bank of Japan is largely expected to remain on hold this year with slight risk that the BoJ could possibly ease rates. Nonetheless, we favor the yen to continue to benefit from increased risk aversion and see the currency breaking through the 100-level over the coming months.