The greenback has recovered from some of its earlier sharp losses against the euro, which slumped past the 1.28-level to 1.2822. The primary driver in the foreign exchange market on the Tuesday session was the strong rally in US equity bourses, with the Dow Jones surging by over 4.5%, the Nasdaq advancing by over 6.0% and the S&P 500 gaining by over 5%.
US equities regained their footing after heavy selling in recent sessions on the heels of an internal memo from Citigroup CEO Pandit, describing the current quarter as its best since 2007. Pandit said he was encouraged by the strength of Citigroup's business in the current year and was profitable for the first two months of the year, adding it was the best quarter-to-date performance since the third quarter of 2007.
There was little economic data from the US, seeing only the release of January wholesale inventories and wholesale sales. The January inventories figure declined by 0.7% while the sales number fell by 2.9%. Scheduled for release on Wednesday will be the February Federal Budget, expected to show a deficit of $200 billion, up from $175.56 billion in the previous month.
Fed Chairman Bernanke spoke earlier, saying the recession has been more severe than initially anticipated. He said if the government is successful in stabilize the banking system, there's a good chance the recession can end later in 2009. Further, he said it was imperative to adopt a strategy to regulate the financial system as a whole and not just as components. Bernanke said the Fed should be involved in systemic risk regulation, even if not in a lead role.
The sterling slumped further against the dollar and euro amid dismal UK economic reports, sliding to 1.3692 and 0.9246, respectively. January manufacturing output tumbled by 2.9% compared with a 2.2% decline a month prior and falling by 12.8% versus the year before at a decline of 10.2%. Industrial output also weakened, down 2.6% and worsening from the 1.7% decline in the previous month and falling by 11.4% versus a 9.5% drop a year earlier.
Cable trades just above the 1.37-level, with support starting at 1.37 followed by 1.3660 and 1.3630. Subsequent floors are eyed at 1.36, backed by 1.3550 and 1.35. On the upside, ceilings will emerge at 1.3760 followed by 1.38 and 1.3840. Additional gains will target 1.3880 and 1.39.