Weekly Currency Wrap-up
Global interest rate policies remained the dominant market influence over the past week and market volatility increased although overall trading ranges were contained to relatively narrow ranges as there were several reversals in direction.

The US Federal Reserve increased interest rates for the 15th consecutive time at the latest meeting with the Fed Funds rate now at 4.75%. In the statement accompanying the decision, the Fed expected a slowdown in the economy during the second quarter, but remained concerned over inflation and retained the phrase that there may need to be further interest rate increases to contain inflation. It also indicated that decisions would now be dependent on forthcoming economic data.

The US data this week was mixed and failed to offer consistent direction, but suggested firm growth with controlled inflation. There was a significant increase in consumer confidence while jobless claims fell slightly in the latest week. The core consumer inflation rate recorded a 0.1% increase in the personal spending data to give a 1.8% annual increase.

In the Euro-zone, the German IFO index pushed to a 15-year high of 105.4 in March, reinforcing confidence over the economy while business confidence strengthened. There was tough rhetoric from the ECB on interest rates and the monetary data was potentially important with an increase in M3 growth of 8.0% in the year to February. There was also strong lending growth, particularly in the housing sector, and a disappointing German unemployment report failed to have a significant impact. There were increases in US and German bond yields over the week with 10-year US Treasury yields pushing to the highest level since the third quarter of 2004 at 4.80%.

The elevation in Euro interest rate expectations were important for the markets with the Euro securing a firm tone during the week on the major crosses. The Euro pushed to 2006 highs against Sterling and the Swiss franc while also strengthening against the yen. The rise in US yields curtailed Euro advances against the dollar with resistance above the 1.2150 level while the Euro found strong support below 1.20.

The core Japanese consumer price increase was slightly lower than expected at 0.5% in the year to February, but the employment data was strong and the government upgraded its economic assessment. The yen was subjected to conflicting capital account pressures during the week as flows were dominated by year-end considerations. The yen found support above the 118.0 level against the dollar and strengthened back towards 117.25, but struggled to sustain gains.

The UK economic growth-orientated data had a mixed tone with consumer confidence weakening to -7 in March from -4 in February while there was a weak CBI retail survey, but the housing data was mixed. Structural considerations were significant with the UK current account deficit widening to GBP31.9bn for 2005, the worst result since 1998.

Interest rate trends were also significant with short-term US interest rates moving above UK rates for the first time in five years. Sterling weakened to lows near 1.73 against the dollar and was unable to sustain corrections above the 1.7450 level in choppy conditions.

The Australian and New Zealand dollars remained under pressure over the first half of the week with the New Zealand dollar weakening to below the 0.60 level against the US dollar while the Australian dollar weakened to near 0.70. There was, however, a corrective recovery over the second half of the week as aggressive short positions were pared back. Emerging-market and high-yield currencies remained vulnerable over the week with the Icelandic central bank forced to increase interest rates again to defend the currency. The krona struggled to recover and there were further losses for high-yield emerging market currencies.

Have a great day and a wonderful weekend.