NEWS / Foreign Exchange

U.S. Forex Market Commentary

EURO

The euro appreciated marginally vis-? -vis the U.S. dollar today as the single currencytested offers around the US$ 1.3240 level and was supported around the $1.3190level.  A mixed bag of U.S. economicdata today contributed to sideways price activity for the common currency.First, U.S.February wholesale inflation expanded at its fastest pace since November 2006with headline producer price inflation up 1.3% and core inflation up 0.4%. Onan annualized basis, headline and core PPI were up 2.5% y/y and 1.8% y/y.  Traders will evaluate these data more closelyafter tomorrow??™s February consumer price inflation data are released butFederal Reserve policymakers who convene next Tuesday and Wednesday areunlikely to be satisfied with the acceleration in wholesale inflation.  The spike in inflation comes at aparticularly difficult time for policymakers who on one hand must be vigilantagainst inflation and on the other hand, may be forced to lower interest ratesif the U.S.sub-prime mortgage industry fallout worsens. Second, weekly initial jobless claims were off 12,000 to 318,000 lastweek while continuing jobless claims were up 48,000 to 2.58 million.  Third, the Federal Reserve Bank of New York??™s Empire State manufacturing indextumbled in March to 1.85 from 24.35 in February.  Fourth, Treasury International Capital flowsdata evidenced a major gain in January with foreign capital flows totaling US$74.6 billion into the U.S. two months ago, after December??™s revised outflow ofUS$ 14.7 billion ??“ the first outflow since June 2005.  Net purchases of U.S. long-term securities rose toUS$ 115.0 billion in January from US$ 62.8 billion in December.  In eurozone news, the European Central Bank??™sMarch monthly economic bulletin confirmed the ECB believes ???some moderation inGDP growth compared with Q4 2006??? will materialize.  Other data released today saw eurozone Q4labour costs rise at an annualized rate of 2.4%, down from 2.5% in Q3 whileEMU-13 February inflation was unchanged at 1.8% y/y.  Euro bids are cited around the US$ 1.3115level.

JPN/CNY

The yen waslittle-changed vis-? -vis the U.S. dollar today as the greenback tested offers around the ??117.55level and was supported around the ??117.00 figure.  Bank of Japan Governor Fukui indicatedthere is ???no direct link between the (BoJ??™s recent) rate hike and the recentglobal stock market weakness.???  Clearly,however, some traders reduced exposure to short yen carry trades when Japaneserates were lifted to +0.50%.  TheJapanese government left its assessment of the economy unchanged this month,noting it is ???recovering despite some weakness in consumption.???  The government also noted that ???consumerconfidence has also been flat.??? Data released in Japan overnight saw foreigners sella net ??429.9 billion of Japanese equities last week, meaning non-Japaneseaccounts were net sellers for the second consecutive week.  The Nikkei 225 stock index climbed 1.10% toclose at ??16,860.39.  Dollar bids arecited around the ??116.25 level.  The euro moved higher vis-? -vis the yenas the single currency tested offers around the ??155.50 level and was supportedaround the ??154.70 level.  The British pound and Swiss francappreciated vis-? -vis the yen as the crosses tested offers around the??227.50 and ??96.60 levels, respectively. The Chinese yuan depreciatedvis-? -vis the U.S. dollar today as the greenback closed at CNY 7.7440 in theover-the-counter market, up from CNY 7.7380. Data released in Chinatoday saw industrial value-added output climb 18.5% in the January-to-Februaryperiod. 

STERLING

The British pound weakened vis-? -vis the U.S. dollar today as cable tested bids aroundthe US$ 1.9305 level and was capped around the $1.9390 level.  Technically, today??™s intraday low was justabove the 23.6% retracement of the move from $1.9670 to $1.9180.  CBI lifted its 2007 GDP forecast for the U.K. economy to2.9% from 2.7%.  It was announced thatBank of EnglandChief Economist and Monetary Policy Committee member Charles Bean wasreappointed to the MPC for another three-year term from 1 June.  In other BoE news, a survey released by thecentral bank today saw U.K.inflation expectations for the coming year remain elevated at 2.7%.  Cable bids are cited around the US$ 1.9215level.  The euro moved higher vis-? -vis the British pound as the single currencytested offers around the ?‚¤0.6840 level and was supported around the ?‚¤0.6820level.

SWISS

The Swiss franc appreciated marginally vis-? -vis theU.S. dollar today as the greenback tested bids around the CHF 1.2140 level and wascapped around the CHF 1.2215 level. Technically, today??™s intraday high was right around the 23.6%retracement of the move from CHF 1.2550 to CHF 1.2105.  As expected, Swiss National Bank liftedinterest rates by +25bps today and its three-month Libor target rate is now1.75% to 2.75% with the target at 2.25%. Today??™s move by SNB represented the sixth consecutive rise sinceDecember 2005.  Notably, the central bankkept its 2007 GDP growth forecast unchanged at 2% and raised its inflationforecast to 0.5% from 0.4%.  Dollaroffers are cited around the CHF 1.2230/ 75 levels.  Theeuro gained marginal ground vis-? -vis the Swiss franc as the singlecurrency tested offers around the CHF 1.6125 level while the British pound moved lower vis-? -vis the Swiss franc and testedbids around the CHF 2.3505 level.

AUD

The Australian dollar appreciated vis-? -vis the U.S.dollar todayas the Aussie tested offers around the US$ 0.7890 level and was supportedaround the $0.7845 level.  Technically,today??™s intraday high was right around the 23.6% retracement of the move fromUS$ 0.7695 to $0.7945.  Data released in Australia todaysaw the February jobless rate rise to 4.6% from 4.5% in January. Australiandollar bids are cited around the US$ 0.7820 level.

CAD

The Canadian dollar appreciated marginally vis-? -visthe U.S. dollar today as the greenback tested bids around the C$ 1.1730 level and was cappedaround the C$ 1.1770 level. Technically, today??™s intraday low was just abovethe 38.2% retracement of the move from C$ 1.1560 to C$ 1.1825.  U.S. dollar bids are cited around the C$1.1695/ 55 levels.