Expert Analysis of Today's Market

• The dollar was higher against the euro and yen on Wednesday, as the FX market awaited the minutes of the Federal Reserve’s last policy meeting. European Central Bank President Jean-Claude Trichet is expected to hold rates at 3.75% at the ECB interest-rate decision meeting tomorrow while signaling more rate hikes to come. Futures priced in hikes to 4.25%. Sterling and the Canadian dollar were strong. The pound rose against all key currencies after Financial Times reported that the UK Treasury will propose allowing British-based companies to repatriate overseas profits tax free.


• The EUR/JPY reached the highest level since its launch in 1999 after a surprise drop in Japan’s core machinery orders in February. The EUR/JPY has penetrated the 160-handle. The carry trade is a powerful force and the strong momentum is also supported by Japanese retail customers in search of higher yields abroad. However, the pair is overbought and a consolidation may occur before next weekend’s G7 meeting. We stopped out at 160.35 today.

Financial and Economic News and Comments

US & Canada

• The International Monetary Fund cut its forecast for US economic growth in 2007, citing a weaker housing market. The US will expand 2.2% in 2007, the weakest in 5 years, compared with a September estimate of 2.9%, the IMF said in its World Economic Outlook released today in Washington. The US economy grew 3.3% in 2006.

Europe

• Germany’s wholesale inflation rose 0.5% m/m in March, the fastest pace since August, the Federal Statistics Office reported.

Asia-Pacific

• Japan’s machinery orders fell a more-than-expected 5.2% m/m in February. Non-government orders, excluding shipping and utilities, declined to ¥1.04 trillion ($8.7 billion) in February, following January’s 3.9% m/m rise, the Cabinet Office said.


• Japan’s current account surplus widened 4.9% y/y to ¥2.42 trillion ($20 billion) in February, the Ministry of Finance said.

FX Strategy Update