Fundamental Outlook

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The euro scored sizable gains vis-?-vis the U.S. dollar today as the single currency tested offers around the US$ 1.5490 level and was supported around the $1.5330 level. The common currency nearly retraced most of its appreciable sell-off yesterday and came within pips of establishing a new lifetime high. The move higher was precipitated by data that saw EMU-15 industrial output up 0.9% m/m and 3.8% y/y, above estimates. These data reduced chances that the European Central Bank will lower interest rates in H1 2008. These data are also important because they confirm that it is not just Germany that is fueling economic expansion in the eurozone, but also larger member countries including France, Spain, and Italy. Other data released today saw French harmonized consumer price inflation remain unchanged at 3.2% in February, significantly above the ECB's ceiling target of 2.0%. A German trade organization reported German exports will move through the ?1 trillion level for the first time ever in 2008. In U.S. news, traders await retail sales, jobless claims, and import prices data tomorrow. Euro bids are cited around the US$ 1.5145 level.

?/ CNY

The yen appreciated vis-?-vis the U.S. dollar today as the greenback tested bids around the ?102.20 level and was capped around the ?103.50 level. The pair retraced some of yesterday's gains as the markets digested the Federal Reserve's massive liquidity injection. Data released in Japan overnight saw Japanese economic growth accelerate in the October - December quarter, up 0.9% m/m and 3.5% y/y. Also, the January current account surplus expanded 8.1% y/y to ?1.236 trillion and the February corporate goods price index was up 0.4% m/m and 3.4% y/y, its fastest pace in 27 years. The government reported consumer sentiment worsened to 36.1 in February, the fifth consecutive monthly pullback. Minutes from Bank of Japan Policy Board's meeting on 14-15 February were released overnight and policymakers reported global financial markets "continued to be unstable, and that downside risks to the global economy, especially the US', were increasing." BoJ member Noda reported industrial production could "flatten" in the near term but added the central bank is not expected to change monetary policy at this time. There is gridlock in parliament as the Upper House rejected Muto, the Fukuda government's nominee to succeed retiring BoJ Governor Fukui on 19 March. There is currently a chance there may be no BoJ Governor when Fukui retires and policymakers are trying to avoid this. The Nikkei 225 stock index gained 1.60% to close at ?12,861.13. U.S. dollar bids are cited around the ?101.20 level. The euro came off vis-?-vis the yen as the single currency tested bids around the ?158.00 figure and was capped around the ?159.10 level. The British pound weakened vis-?-vis the yen as sterling tested bids around the ?206.40 level while the Swiss franc appreciated vis-?-vis the yen and tested offers around the ?100.35 level. The Chinese yuan appreciated vis-?-vis the U.S. dollar as the greenback closed at CNY 7.1010 in the over-the-counter market, down from CNY 7.1029, the pair's lowest close since the yuan revaluation of July 2005. Commerce Minister Chan said that if China diversifies its US$ 1.6 trillion in foreign reserves away from the U.S. dollar, it could "cause a sharp appreciation" of the euro and yen. Data released in China overnight saw retail sales climb 20.2% y/y in the January - February period while actual foreign direct investment was up 75.19% in the January - February period. Also, consumer confidence fell to 95.6 in January from 96.9 in December.

₤

The British pound moved higher vis-?-vis the U.S. dollar today as cable tested offers around the US$ 2.0210 level and was supported around the $2.0055 level. Cable continues to be capped around the $2.0205/ 10 level, an area it hasn't been able to trade decisively through over the past four trading days. Traders await today's U.K. Budget statement from Chancellor of the Exchequer Darling. Data released in the U.K. overnight saw the January trade deficit remain unchanged at -₤7.5 billion. Cable bids are cited around the US$ 1.9910 level. The euro moved higher vis-?-vis the British pound as the single currency tested offers around the ₤0.7675 level and was supported around the ₤0.7625 level.

CHF

The Swiss franc appreciated vis-?-vis the U.S. dollar today as the greenback tested bids around the CHF 1.0200 figure and was capped around the CHF 1.0350 level. Swiss National Bank is expected to keep interest rates on hold tomorrow. The three-month Swiss franc Libor target range is 2.25% to 3.25% and SNB aims to keep the rate around the mid-point, or 2.75%. Swiss inflationary pressures are expected to rise in the short-term and decrease by the end of the year. Data released in Switzerland today saw the March economic expectations index fall to -71.7 from -55.5 in February. U.S. dollar offers are cited around the CHF 1.0475 level. The euro and British pound weakened vis-?-vis the Swiss franc as the crosses tested bids around the CHF 1.5790 and CHF 2.0595 levels, respectively.