USD– Currency markets continued to follow risk trends last week and this morning in the absence of key data on the economic calendar. The one notable exception, however, was last week’s release of minutes from the 3/17 FOMC meeting, which suggested that credit conditions are still “very tight” and that financial markets continue to be “fragile and unsettled”. Moreover, the minutes revealed concern over what has been referred to as “feedback effects”—a situation where financial strains fuel the economic troubles, and vice-versa, such that the cycle maintains itself. Given that the Fed has cut the Fed Funds target to historic lows (0 to 0.25%), and has now officially embarked on a “quantitative easing” campaign, the impact of disappointing fundamental data will likely continue to be mixed, as “flight-to-quality” capital flows tend to underpin the USD, in the event the US economic landscape worsens. Markets will have plenty of “event risk” this week to give it momentum and direction, especially as Europe becomes fully active again tomorrow following the Easter holidays. On tap for the week will be a slew of top-tier economic indicators, namely, retail sales, inflation, housing, and consumer confidence data releases.

EUR – The single currency is largely range-bound amid Easter holiday-

thinned trading as European markets were closed Friday and today. The EUR steadily declined from highs last week of $1.3581 to $1.3088 as the ECB raised the possibility of quantitative easing as an additional policy measure to stimulate the ailing economy. The euro is likely to remain within familiar levels as markets ponder this possibility and the potential impacts on the single currency.

JPY – The yen fell broadly this morning as stronger performance in Asian stock markets overnight boosted investor risk appetite and lessened the safe-haven appeal of the Japanese currency. This morning’s decline builds on the momentum of a slide that began last week as the Japanese government announced that it would sell more than $100B in debt over the course of the next 12 months in order to fund a record economic stimulus plan. Such a move could prompt the BoJ to also purchase more government bonds to support a Japanese economy that continues to deteriorate in 2009 as exports and production slide and job conditions worsen. The BoJ has already made it a priority to ease credit conditions by lending against a wider range of municipal debt to support regional banks, while leaving interest rates unchanged at 0.1% as expected.

GBP – The BoE kept its benchmark interest rate unchanged at 0.5% last week, ending six months of rate cuts. The Central Bank said it bought GBP 26B worth of debt and said policy makers voted to “continue with the program, announced on March 5, of asset purchases” totaling 75B pounds ($110B). The GBP posted a weekly loss against the dollar as British stocks fell for the first time in five weeks. The FTSE 100 Index of British shares fell 1.1% since April 3 as Royal Bank of Scotland Group Plc said it plans to cut 9,000 jobs and manufacturing dropped the most in at least four decades. In Q1’09 the UK economy shrank 1.5% according to the National Institute of Economic and Social Research.

CAD – The loonie responded well last week to higher oil prices, a rise in housing starts and a record direct investment surplus with the US. The Canadian Dollar gained a little over 1% vs. the USD in trading last week reaching a high of 1.2237. Canada’s dollar touched the highest level against its U.S. counterpart in more than two weeks, last Thursday, amid signs deterioration in the world’s eighth-largest economy may be losing momentum and improved prospects for commodity currencies (crude $52.24 4/9). Canadian housing starts rose for the first time in seven months in March on higher construction of multiple-unit buildings. The annualized rate of 154,700 units increased from a more than eight-year ow of 136,100 units in February.

l

MXN – The peso displayed a sharp climb vs. the USD last week posting a near 3% gain for a high of 13.0893. Mexico’s consumer confidence rose in March (79.4 vs. 78.9 in Feb). The Consumer Sentiment Index reflects Mexicans’ perception of the economy, their financial situation and whether they consider it a good time to spend on durable goods. Net Mexican exports increased in February to $16.1B from $15.2B in January, primarily on petroleum. In a continuing effort to prop up the peso, Mexico’s Central Bank bought $100M worth of pesos during an auction last week at an average weighted price of 13.3383 per US dollar. Last Thursday Mexico’s Peso rose to its strongest level since last December as a rally in commodities and stocks buoyed demand for higher-yielding, emerging-market assets.

CNY – The Chinese yuan is slightly lower vs. the dollar at 6.8352. The central bank has signaled its intention to keep the yuan stable by keeping the currency in ranges between 6.83-6.8399 since mid-December.