Daily Forex Overview

Previous session overview

On Wednesday, the euro jumped to a three-week high against the yen as a rise in U.S. stock markets fueled investors' appetites for higher-yielding currencies.

The US dollar strengthened vs. the major currencies after data showed US inflation rose in January, casting doubt on expectations the Fed will aggressively cut interest rates. As the US economy slows down, inflation may cause implications on the Fed slashing overnight rates by another half percentage point from the current 3 %.

Although the euro gained versus the yen Wednesday, it was unable to advance against the dollar as concerns began to mount that the U.S. economic slowdown and tighter credit market conditions might soon be passed on to the euro zone.

The Sterling weakened against the dollar after stronger than expected US CPI data. This morning, minutes from the Bank of England's February policy meeting was released, which added further pressure to the pound.

The Japanese yen weakened against the dollar after stronger than expected US CPI data. With encouraging CPI data, carry trade advanced to the forefront, strengthening the greenback against the yen.

Other higher-yielding currencies such as the Australian and New Zealand dollars also advanced as U.S. equity markets shrugged off persistent worries of a U.S. recession and new concerns about rising inflation. The Australian dollar gained ground Thursday, continuing to draw strength from favorable interest rate spreads and signs of renewed stock market stability.

Market expectation

The Philly Fed survey is scheduled for release on Thursday as the only key piece of economic data.

With inflation starting to tick up, we might see the Fed starting to think that they might not want to cut by as much as they were perhaps planning.

Given recent U.S. economic conditions, investors may not be able to turn dollar buyers" soon, though "traders (also) remain concerned about the direction of the euro zone economy and its financial system.

Retail sales are due for release today and we expect the strength of the labor market to drive up spending.

Markets are becoming desensitized to news regarding the credit market crunch and the U.S. economic downturn. They are anticipating a recovery.

Euro zone consumer prices, the Swiss trade balance and Swiss Producer prices are due for release tomorrow - expect another active trading session.

Most important events of the day