The dollar was unable to carry yesterday's gains into the current session, with the Aud being the largest gainer. The EurUsd picked 24pips to the mid range of 1.27, while the UsdJpy surges 129pips to high 98 level. The GbpUsd rallied over 120pips to the low 1.43 price area moving very consistently with risk aversion. Equity markets rose in the US and Europe with the Dow up less than 1% or 23pts, while the DAX added a solid 2.5% or 96pts. Bond yields increased the UST curve, but even more interesting was the jump in 10yr rates throughout Europe. UK bonds gained 18bps, French, German, and Italian securities all added 10+bps to their current interest rate levels. Commodities were mixed with oil up 4.4% to $44bbl, and gold down 1.3% to $941oz.

Speculation builds around the ECB's approach to monetary policy, with the refinance rate at 2% well above its counterparts in the US, Japan, and the UK. Several key components to focus on is the rising unemployment situation in Germany serving as evidence that it will be difficult for them to subsidize a bailout for its Eastern European neighbors. The rapidly deteriorating economies within the Eurozone, and those surrounding the region are adding substantial pressure to the currency. The lack of clarity within the marketplace has left will have an adverse effect on the performance of the Euro. In the UK, the BoE expressed concerns regarding the money supply and how to prevent a rapid rise in inflation when the markets do recover. UK financial institutions are utilizing a new asset protection program created by the govt. totaling about 325bln GBP. These actions should ease the possibility of future risks, it is important to note that BoE MPC member Blanchflower expects the UK recession to deepen and unexpected occurrences cannot be completely ruled out.


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