The U.S. dollar took a step forward this morning

The U.S. dollar took a step forward this morning, trimming recent losses against the euro following the ECB??�s decision to leave interest rates unchanged. There was no signal from ECB President Jean-Claude Trichet that a near term hike was imminent, disappointing some, especially those concerned about inflation. Also supporting the dollar was a report showing that new applications for U.S. jobless aid fell unexpectedly last week, declining for the third successive week, suggesting that the labor market remained relatively healthy. Market attention will shift to Fed Chairman Ben Bernanke's testimony before Congress today on the current state of the economy, especially in light of the ongoing issues in the subprime mortgage sector.

After hitting an all time high against the USD yesterday, the euros??� march came to an abrupt halt following news that the ECB will leave rates steady at 4%. European Central Bank President Jean-Claude Trichet commented today that "brutal" exchange rate moves were never good for the world economy. In January 2004, Trichet used the word "brutal" to describe a sharp rise in the euro, then at record highs of $1.2898. He noted that he had seen "sharp and abrupt" moves in exchange rates, adding that the Group of Seven finance ministers' position on the undesirability of disorderly movements was true more than ever. The euro is also supported by lingering market expectations for the U.S. Federal Reserve to cut interest rates in December, and for the ECB to keep euro zone rates steady for a while.

The British pound surged to fresh 26-year highs against the USD despite news that the Bank of England left interest rates on hold at 5.75 percent and is not expected to change rates for the next few months.

The Japanese yen broke out of its recent ranges against the USD today, climbing to 3-month highs. Japanese Vice Finance Minister Hiroki Tsuda said he would continue to carefully watch movements in the market and economic data after pointing out a sharp rise in crude oil prices and developments in the U.S. economy as factors that could affect the Japanese economy.

The continuing surge in commodities prices and negative sentiment towards the U.S. dollar is keeping the Canadian dollar steady, near its highest level against the U.S. dollar since the late 1800s. The CAD should remain well supported in the next months, especially if the likelihood of another rate cut in the US increases.

The Australian dollar retreated from near 24-year peaks as investors dumped high-yielding currencies amid a fresh bout of risk aversion. Even after the Reserve Bank of Australia raised rates by 25 basis points to an 11-year high of 6.75 percent and left the door open for more tightening, investors are moving away from the currency. The AUD has risen nearly 16% this year, buoyed by firm commodity and gold prices. The underlying fundamentals for the Australian economy remain strong and that should support the Aussie in the long term.