USD – The greenback began surrendering some of its “safe haven” appeal last week as investor risk appetite increased on the back of a surging equities market, ostensibly improving consumer confidence, and a cautious outlook concerning this past weekend’s G-20 summit in the UK. The DJIA enjoyed four consecutive sessions of growth (currently at 7,272.00; +49.00) amidst a much-improved outlook for the beleaguered financial sector, and auspicious hopes that the Obama Administration’s aggressive economic reform policies would bring about greater stability. Meanwhile, sanguine economic data helped to stabilize capital outflows from the dollar, lending credence to the notion that the worst may finally be behind: Import Index (-12.8% in Feb. vs. -12.5% prior); Trade Balance (-$36.0B in Jan.—lowest level in 6 years—vs. -$39.9B prior); University of Michigan’s Consumer Confidence Index (56.6 in Mar. vs. 56.3 prior, and 55.0 exp.). As the headline event of the week, markets were closely attuned to this past weekend’s G-20 meeting. Despite some disconcerting rhetoric from Chinese Premier Jiabao, who bluntly questioned the security of US assets, the biggest take-away from the global gathering was the policy makers decision to double the International Monetary Fund’s resources, primarily aimed at providing relief to Eastern Europe. The major beneficiaries following the G-20 communiqué were the EUR and SEK as they are the currencies most often used to hedge a “sovereign funding crisis” in Europe. The dollar is on the defensive this morning as risk appetite continues to prevail, despite less-than-encouraging news out of the manufacturing sector: Empire Manufacturing Index (-38.23 in Mar. vs. -30.80 exp.); Industrial Production (-1.4% in Feb. vs. -1.3% exp.). Markets will once again have plenty to digest throughout this week as key inflation data and the FOMC meeting will take center stage.

EUR – The euro rose to 5-week highs vs. the dollar at 1.3070 following news that US Capital Flows fell -$148.9B in January. Today’s rise builds upon a week of steady gains for the single currency following an easing of risk aversion after last week’s low of $1.2529. The euro’s gains are likely to be capped as the Eurozone struggles to emerge from recession. Germany, Europe’s largest economy, reported that industrial output fell -7.5% in January, the largest decline since 1990. Despite the economic hurdles, the ECB stated that interest rates were unlikely to fall below 1% from current levels at 1.5%. The self imposed limited policy options are likely to be a drag on the euro until the region shows signs of sustainable growth.

JPY – The yen was a tad lower against the dollar on Monday, partly on demand from Japanese importers. Last week, the currency was mixed on the back of resurgence in risk appetite as evidenced by higher closings on the global equities stage. Markets were keeping an eye on the BoJ, which meets tomorrow on its interest rate announcement, as it may increase its monthly buying of long-dated government bonds to keep interest rates low and help boost the economy. Meanwhile, final Q4 ’08 GDP showed the economy contracted a bit less than initially estimated (-3.2% actual vs. -3.3% prelim.), outpacing forecasts for a deeper -3.5% retrenchment. However, the final figure represents the worst growth since the oil crisis in 1974. Meanwhile, Machine Orders fell -3.2% through January to bring the pace of decline to a staggering -39.5% (annualized)—the worst on record and the lowest in at least 29 years. The Current Account (Jan.) showed the largest deficit since 1986, with exports to the US down -52.9%.

GBP – Sterling was coming off its one-week highs against the dollar this morning following earlier gains in UK share prices, amid news that Barclays Bank may sell its iShares unit and thus avoid having to receive government assistance. However, analysts agree cable’s long-term trend remains bearish, and within sight of 23-year lows, as the IMF has projected the UK’s recession would be the worst in the industrialized world. Over the past months, the government has made aggressive strides to correct its deep slump via quantitative easing, bank nationalization, and large stimulus funds. Meanwhile, house prices in England and Wales were lower than a year ago (-9.0% y/y in Mar. vs. -9.1% y/y in Feb.). The UK trade deficit widened to £7.74B (Jan. vs. £7.23B in Dec.) with much of the decline attributed to waning demand from non-EU countries. Industrial Production

fell by a more-than-expected -2.6% in Jan.—dragging it down to a 28-year low of -11.4% (y/y) from -9.3% (y/y).

CAD – The loonie made a strong climb last week vs. USD tracking 2.3% for a high of 1.2718, after a dismal opening. Canada’s currency weakened to the lowest level since September 2004, breaking through 1.30 for the first time in four months. Crude Oil Futures saw a peak of $48.26/bbl only to reverse those gains in this morning’s trading ($44.37 as of this report). Finance Minister Flaherty optimistically said the world’s eighth-argest economy may come out of recession before other countries.


MXN – The peso received a considerable respite last week from its near-term declines—gaining almost 8% vs. USD from a high of 15.5890 last Monday to reach a low of 14.1237—mostly on brief reversals in risk-aversion and crude oil moves. On the whole, economic conditions in Latin America’s second largest economy remain poor. Mexico’s currency, the worst performer among the world’s most-traded currencies in the past six months, will weaken another 14% by year-end as the nation’s twin deficits swell, said Rogelio Ramirez de la O, the economist who predicted the 1994 devaluation.

CNY – The yuan is mostly unchanged at 6.8381 vs. USD from Friday’s close. Markets are projecting the yuan to decline 1.34% over the next 12-months as authorities follow a “stable currency policy” amid the global economic slowdown.

Last week and this morning: Forecasts:

EUR 1.3070 – 1.2529 1.2828 – 1.3260

JPY 99.18 – 95.65 99.80 – 97.10

GBP 1.4304 – 1.3653 1.4377 – 1.3850

CHF 1.1965 – 1.1429 1.1920– 1.1625

AUD 0.6631 – 0.6303 0.6704 – 0.6444

CAD 1.3063– 1.2624 1.2943 – 1.2575

DKK 5.99443– 5.7023 5.9300 – 5.7011

NZD 0.5315 – 0.4910 0.5380 – 0.5020

MXN 15.5890 – 14.1237 14.8500 – 14.1050

SGD 1.5561 – 1.5244 1.5523 – 1.5242

TWD 34.997 – 34.180 35.185 – 34.242

ZAR 10.6680 – 9.8055 10.4411 – 9.8209