NEWS / Foreign Exchange

U.S. Forex Market Commentary

EURO

The euro appreciated sharply vis-? -vis the U.S.dollar todayas the single currency tested offers around the US$ 1.3340 level and wassupported around the $1.3235 level.  Technically,today??™s intraday low was just below the 23.6% retracement of the move from$1.3365 to $1.2865.  Today??™s intradayhigh represents the pair??™s strongest showing since 8 December 2006.  Data released in the U.S. today saw mid-March University of Michiganconsumer sentiment fall to 88.8 from February??™s 91.3, below expectations.  Also, February industrial output was up 1.0%,the largest gain since November 2005, while capacity utilization rose to 82.0%,the highest level since September. On an annualized basis, industrialproduction was up 2.3% over the past twelve months.  Additionally, February consumer priceinflation was up more-than-expected at 0.4% with core prices up 0.2%, down fromJanuary??™s 0.3% gain. Notably, however, core inflation has risen at athree-month annualized pace of 2.7%. Today??™s data will probably not result in a monetary tightening nextWednesday when the Federal Open Market Committee??™s interest rate decision isannounced.  The Fed, however, will likelyretain some language regarding elevated price pressures on account of thisweek??™s relatively strong producer and consumer price inflation data.  The key question in traders??™ minds is how theFed will respond if the fallout in the U.S. sub-prime mortgage marketworsens. Some traders are already speculating the FOMC may orchestrate a ratecut within a few months to support the troubled mortgage market but lingeringprice pressures make it difficult for the Fed to move now.  Former Fed Chairman Greenspan last night saidthere could be ???spillover effects??? from the sub-prime market fallout. Datareleased in the U.S.yesterday saw the Philadelphia Fed March manufacturing survey fall to 0.2 from0.6 in February while the prices paid and prices received sub-indices bothmoved higher.  Euro bids are cited aroundthe US$ 1.3235/ 05 levels.

 JPN/CNY

The yen appreciatedvis-? -vis the U.S. dollar today asthe greenback tested bids around the ??116.50 level and was capped around the??117.55 level.  Technically, today??™sintraday low was just above the 61.8% retracement of the move from ??115.15 to??118.50.  Data released in Japan today sawthe January tertiary index up 1.6% m/m, the first improvement in three months,while the January leading index was upwardly revised to 40.9 from 35.0.  The yen??™s intraday performance vis-? -visother crosses remains was mixed so while some of the yen??™s strength today mayreflect unwindings of short yen carry trades, most of the moves in the markettoday reflect the weakness of the U.S. dollar. One factor on traders??™ minds remains the upcoming tankan survey ofcorporate sentiment. A strong reading could bolster the likelihood that Bank ofJapan will raise interest rates again this year and lead to additional yenstrength.  The Nikkei 225 stock index lost0.69% to close at ??16,744.15.  Dollarbids are cited around the ??116.25/ 115.60 levels. The euro moved lower vis-? -vis the yen as the single currencytested bids around the ??155.25 level and was capped around the ??155.85level.  The British pound came off vis-? -vis the yen as sterling testedbids around the ??226.35 level while theSwiss franc moved higher vis-? -vis the yen and tested offers around the??96.95 level.  The Chinese yuan appreciated vis-? -vis the U.S. dollar as thegreenback closed at CNY 7.7360 in the over-the-counter market, down from CNY7.7440, a post yuan revaluation low. People??™s Bank of China reported that it will continue pursuing yuanconvertibility on China??™scapital account and noted it will let foreign banks trade gold soon.  PBOC also indicated its FX reserve holdingsinclude the U.S. dollar, yen, euro, and British pound.

STERLING

The British pound gained ground vis-? -vis the U.S.dollar todayas cable tested bids around the US$ 1.9505 level and was supported around the$1.9355 level.  Technically, today??™sintraday high was right around the 38.2% retracement of the move from $1.8835to $1.9845.  Data released in the U.K. today sawIRS pay awards remain unchanged at 3.5% in the three months to February, thesame rate as in January.  Traders expectChancellor of the Exchequer Brown??™s Budget next week to include optimisticforecasts for the U.K.economy.  Cable bids are cited around theUS$ 1.9340 level.  The euro gained ground vis-? -vis the British pound as the singlecurrency tested offers around the ?‚¤0.6865 level and was supported around the?‚¤0.6830 level.

 
SWISS

The Swiss franc appreciated sharply vis-? -vis theU.S. dollar today as the greenback tested bids around the CHF 1.2025 level and wascapped around the CHF 1.2175 level.  Thepair reached levels not seen since 13 December 2006.  Data released in Switzerland today saw Januaryretail sales climb 5.1% y/y.  Dollaroffers are cited around the CHF 1.2185 level. The euro and British poundweakened vis-? -vis the Swiss franc as the crosses tested bids around theCHF 1.6035 and CHF 2.3430 levels, respectively.

AUD

The Australian dollar gained ground vis-? -vis theU.S. dollar today as the Aussie tested offers around the US$ 0.7975 level and wassupported around the $0.7875 level.  Technically,today??™s intraday low was right around the 76.4% retracement of the move from$0.7945 to $0.7680.  Reserve Bank ofAustralia Assistant Governor Edey today reported that underlying inflation isexpected to moderate over the next two years to about 2.75% but that this is???more likely to be too high than too low.??? Australian dollar bids are citedaround the US$ 0.7870 level.

CAD

The Canadiandollar appreciated vis-? -vis the U.S. dollar today as the greenback testedbids around the C$ 1.1710 level and was capped around the C$ 1.1770 level.  Canada will release its federalbudget for the 2007 ??“ 2008 fiscal year on Monday.   U.S.dollar bids are cited around the C$ 1.1655 level.