USD– America’s currency was driven lower throughout last week as increased risk appetite only worked to the benefit of higher yielding currencies, most notably the AUD and NZD. Where the greenback goes from here will depend, not surprisingly, on risk trends, as fundamental factors have yet to really matter for the currency. Indeed, for the most part US economic data have beaten market expectations—with the notable exceptions of last Friday’s NFP (-663K in Mar. vs. -660K exp.) and ISM Non-Manufacturing (40.8 in Mar. vs. 42.0 exp.) releases—and yet the USD has extended its losses. However, given the ostensible inverse correlation between the USD and DJIA, the greenback is being underpinned this morning by the resurgence of “safe haven” flows, while the equities market is suffering a blow in sentiment (after a 5 consecutive day uptrend) on the back of negative corporate earnings releases expected throughout this week (currently: -100 at 7916.15). The singular event risk for the greenback this week will be the release of the FOMC March meeting minutes. Though the big surprise was when the Fed officially announced “quantitative easing” efforts last month, the minutes should shed further insight as to whether or not the FOMC will leave the Fed Funds target unchanged throughout 2009, and if they will continue to use the Central Bank’s balance sheet in an effort

to improve credit conditions. Holiday shortened trading this week will result thinner liquidity beginning Thursday, which could contribute to greater market volatility, further exacerbating trading trends.

EUR – The euro climbed vs. the dollar following last week’s ECB rate cut. The Central Bank cut interest rates less-than-expected by 0.25% to 1.25%, boosting the single currency, paving the way for today’s highs of 1.3581. Markets had anticipated a 0.50% cut in response to signs of a deepening recession in the Eurozone. Retail sales fell -0.6% in February, while consumer and business sentiment remains mired near their record lows. Easing risk aversion is also aiding the euro as equity markets appear to have found support. Consequently, the euro is likely to remain supported in the near-term as interest rate differentials, and optimism that a global economic recovery is taking hold, increases investor appetite.

JPY – The yen fell sharply this morning touching its weakest level against the dollar in almost six months as investors turned to riskier assets in light of increased optimism amidst a view that the current downturn may have reached a bottom. USDJPY broke through the 101 level for the first time since October, bolstered in part by an overnight surge in European shares and a newfound rebound in investor risk appetite. This morning’s slide builds on a broad fall last week as Japanese confidence crumbles and a rapidly deteriorating economy continues to put pressure on the yen. Data out of Japan reported that unemployment reached a seasonally-adjusted 4.4% in February, and household spending slid 3.5% in February from a year earlier. The BoJ’s Tankan survey signaled that business confidence is reaching new lows in March, highlighting a collapse in demand and corporate funding at the tightest levels on record.

GBP – A picture of gradual recovery is starting to emerge and risks are becoming more balanced from being primarily on the downside. PMI showed an upward surprise last week rising to 39.1 in March from 34.7 in February. The index still points to falling production but the decline seems to be tapering off faster-than-expected. For the first time in 16 months, nationwide house prices recorded a rise in March. Last week the BoE released the quarterly Credit Conditions Survey for Q1’09, which revealed that credit was still being tightened for households, though credit for the corporate sector actually eased. With the nascent signs of improvement the Central Bank is expected to refrain from taking further measures to boost the economy, which should in turn underpin the sterling.

CAD – The loonie, which has a tendency to follow commodity prices, stalled on falling oil prices this morning. The CAD which had climbed 1 percent last week appears to be pulling back as investors seek safer assets. Demand for the Canadian currency is waning in anticipation of the jobs report for Canada which is due out on April 9th. It is likely to show job losses have hit the nation for the fifth consecutive month. The expectation of worsening job numbers is raising speculation that the overnment will need to print more money to buy debt assets.

MXN – After climbing more than 10 percent the last few weeks, the Mexican peso fell for the first time in six days on continuing concerns about the global economy. Sentiment that government measures worldwide are inadequate to fortify the global financial system are hurting demand for higher yielding, emerging market assets.

CNY – The yuan is mostly unchanged versus the dollar at 6.8343. Markets are pricing in a modest increase of 1.65% over the next 12-months as the government is viewed as keeping the currency mostly stable amid the global economic downturn.