London Session

The AUD saw a surge of buying interest in early European hours reflecting a general increase in optimism about the global economic backdrop. The better tone was reflected in all the usual cross rates with EUR/USD rising USD/JPY falling and EUR/JPY mimicking the early up move in the AUD. Some of the strength in the EUR and the AUD petered out as the London morning drew out with AUD/USD failed to break above 0.7380 and EUR/JPY finding sellers above 130.50. However, with equity indices remaining positive on the day and the market appearing to be content to take the view that the worse may be over for the global economy a better tone looks set to persist through the US open.

As expected the BoJ left interest rates on hold overnight, lowering its forecast of GDP growth in FY09 to -3.1%. This was largely in line with the government's GDP forecast and brought no significant market impact. The RBNZ also matched market expectations by cutting interest rates 50 bp, warning that rates could stay low until 2010 to offset recession. In the UK, the Gfk consumer confidence data rose to its highest level in a year at -27 while the Nationwide house price index came in better than expected at -0.4% m/m. Both these data were sufficient to support the general mood that the global economy may be stabilising and encouraged some further selling of EUR/GBP back to the 0.8950 area. However neither of these data reflect an outright improvement in the UK economic backdrop. Given this week's data that UK mortgage approvals declined 25% y/y, it is likely that the UK housing market will bump along the bottom for months – a factor which will remain a drag on consumer confidence going forward.

US personal spending data for March will be of interest today. The market is expecting a modest rise of +0.1% m/m despite expectations of a fall in personal income of 0.2%. Given this morning's optimistic tone a strong number is likely to propel USD losses back towards the EUR/USD1.3400 area.