Expert Analysis of Today's Market

• The dollar fell to a new all-time low versus the euro and Swiss franc and rose above $2 against the pound after the European Central Bank and the Bank of England left their benchmark interest rates unchanged. Risk aversion increased after US home foreclosures rose to a record and loan defaults by Thornburg Mortgage Inc. and a Carlyle Group bond fund spurred concern that the credit crisis is deepening. The increased risk aversion strengthened the yen. The Canadian dollar was modestly lower. The Australian dollar fell on carrytrade unwinding and weak commodity prices.


• The EUR/USD rose to a new all-time high following ECB President Jean-Claude Trichet’s hawkish tone that there is strong upward pressure on inflation and the ECB mandate is price stability. He seemed to signal the ECB is in no hurry to cut interest rates. Growth and interest differentials favor the euro. The EUR/USD’s momentum remains strong, likely to attract more momentum traders despite its overbought condition. US employment report tomorrow is expected to be weak, unlikely to change the pair’s direction.

Financial and Economic News and Comments

US & Canada

• US mortgage foreclosures rose to 0.83% in Q4, the highest ever, from 0.54% a year earlier, the Mortgage Bankers Association said. The share of all home loans with payments more than 30 days late, including prime and fixed-rate loans, rose to a seasonally adjusted 5.82%, the highest since 1985.


• US pending home sales were unchanged in January, the National Association of Realtors reported. The index of signed purchase agreements held at 85.9, 20.0% below the level a year earlier.

• US initial jobless claims declined larger than expected by 24,000 to 351,000 in the week that ended March 1, the lowest level since the week of January 19, the Labor Department said. The four-week moving average of initial claims fell to 359,500, from 361,000. The number of people continuing to collect unemployment benefits rose to 2.831 million in the week that ended February 23, from 2.802 million the prior week.

Europe

• The European Central Bank kept its benchmark interest rate at 4.0%, as expected. The ECB revised up its inflation forecasts to 2.9% from 2.5% for 2008 and said inflation will stay above the 2% ceiling in 2009. The ECB also cut its growth forecasts to 1.7% for 2008 and 1.8% for 2009, compared with its December forecasts of 2.0% and 2.1%.


• The Bank of England kept its benchmark interest rate unchanged at 5.25%, as expected.


• ECB President Jean-Claude Trichet said the interest rate decision was unanimous and policy makers are focused on keeping expectations about future price increases in check. “The firm anchoring of medium- to long-term inflation expectations is of the highest priority to the Governing Council,” Trichet said. Uncertainty resulting from financial turmoil remains high but the economic fundamentals are sound, he said.

Asia-Pacific

• Australia’s trade deficit widened to A$2.72 billion ($2.5 billion) in January from a revised A$1.94 billion in December, the Bureau of Statistics reported. Imports rose 5% m/m in January. Exports increased 2% m/m in January to A$19 billion.


• Australia’s home-building approvals rose a less-than-forecast 1.9% m/m in January, following a 11.9% m/m decline in December, the Bureau of Statistics said.

FX Strategy Update