NEWS / Foreign Exchange

The U.S. dollar rose modestly on Friday and pared its losses against the yen

The U.S. dollar rose modestly on Friday and pared its losses against the yen after data showed that U.S. existing home sales rose in February, beating expectations for a decline from the previous month. This morning??™s data release is of special interest to the markets given the problems in the subprime mortgage sector. There are fears that the subprime market turmoil could spill over to other sectors of the economy. The remainder of today??™s session should be fairly quiet; expect the dollar to consolidate in its recent ranges.

The Euro took its cues from the US dollar overnight, trading within a narrow range as markets volume evaporates ahead of the weekend.
   
The British pound posted a mixed performance against major currencies overnight as investor??™s adjusted positions following this week's gains. The pound's gains of around 1 percent this week on a trade-weighted basis were driven by increased confidence the Bank of England will raise rates this quarter, following strong retail sales data and above-consensus consumer price inflation. Overnight, investors locked in some of these gains, although general euro weakness buoyed the pound against the single currency. The pound's strength has also been driven by a more benign global economic environment and a perception that U.S. monetary authorities will act to protect growth. Look for the currency to consolidate in its recent range throughout today??™s session.
   
The Japanese yen reversed losses made earlier this week, strengthening on the back of upbeat comments about the economy by a top official and annual repatriation flows ahead of corporate fiscal year-end. Finance Minister Koji Omi told a news conference that recent rises in Japan's land prices reflected a strengthening of the economic recovery. Land prices rose for the first time in 16 years in 2006, further evidence that the economy is emerging from deflation. Analysts said these comments were supporting the yen after investors dumped it this week to buy higher-yielding assets, whose appeal was enhanced by the Federal Reserve's shift toward a more neutral monetary policy stance.

The Chinese yuan closed weaker against the dollar overnight, as the central bank guided the currency lower in response to the U.S. currency's overnight strength on global markets. The market showed little reaction to a narrowing of the spread of the two currencies' money market rates, which hit its lowest level since the yuan's 2005 revaluation, amid signs that the central bank has increasingly focused on interest rates instead of the exchange rate. The People's Bank of China is believed to continue to allow the yuan to rise a bit faster in the coming months, to forestall arbitrage opportunities that might emerge from the combination of a slower yuan rise and surging money market rates.
   
The Canadian dollar strengthened slightly versus the U.S. currency this morning, helped by stronger oil and gold prices. This morning??™s gains follow losses in the currency yesterday as it consolidated its data-driven gains from earlier in the week. Oil prices, which have risen sharply this week, charged above $62 per barrel on news Iran was holding British Navy personnel after a boarding operation in Iraqi waters. Gold prices were also stronger.
          
The Australian dollar traded in a narrow range against the U.S. currency on Friday after easing off a fresh 10-year high in offshore trade on profit-taking and a rethink on when the Federal Reserve might cut rates this year. The strength of the currency has been underpinned by speculation Australia's central bank will increase interest rates by 25 basis points to 6.50 percent as early as April after it warned last week the outlook for inflation was higher than ideal.   

The Mexican peso edged higher again this morning as markets responded to increased speculation on the near-term movements of Mexican interest rates. Official commentary that Mexico's central bank will tighten monetary policy if it becomes necessary, although recent high inflation should fall toward the bank's goal near the end of the year. Mexican 12-month core inflation fell in the first half of March, leading analysts in a Reuters poll to unanimously forecast the central bank will hold interest rates steady at 7 percent.

Indicative Rates: