Expert Analysis of Today's Market

• The dollar fell to new lows against most key currencies on Friday after US employment fell increasing the risk of a US recession. The greenback later pared losses and traded little changed supported by profit taking.


• The EUR/USD rose to a new all-time high following data on weaker-than-expected US job growth but later pared gains in New York trading on profit taking. The pair is overbought after a month long rally, possibly requiring some consolidation. However, the pair’s long-term outlook is supported by increasing growth and interest rate advantage.

Financial and Economic News and Comments

US & Canada

• US employment unexpectedly fell 63,000 in February, the biggest monthly decline in nearly five years, the Labor Department said. The drop in employment in February followed an upwardly revised loss of 22,000 jobs in January rather than the 17,000 reported a month ago. It also said only 41,000 jobs were created in December, half the 82,000 originally reported. The unemployment rate unexpectedly fell to 4.8% in February from 4.9% in January, but that was because the labor force fell 450,000 in February. Job losses were widespread, 52,000 jobs were lost in the manufacturing industries, 39,000 in construction and 34,000 in retail. Government, education and leisure and hospitality sectors added jobs. The weakness in payrolls is a strong indication the US economy is on the brink of a recession.

• The Federal Reserve increased the size of auctions of four-week funds to banks planned for March 10 and March 24, to $50 billion each from $30 billion previously in an attempt to ease the financial sectors credit crunch. The Fed also said it will make $100 billion available through repurchase agreements.


• Edward P. Lazear, Chairman of the White House Council of Economic Advisers, said the Bush administration expects “close to a zero quarter” in terms of GDP growth. “I wouldn’t say negative, that’s still up for grabs,” he said.


• Canadian employment rose a much stronger-than-expected 43,300 in February following a 46,400 gain in January, Statistics Canada reported. The unemployment rate remained at 5.8%, matching a 33-year low set in October. Hiring in the service industry rose 55,800 in February, while employment fell 12,500 for goodsproducing companies. Hourly wages rose 4.9% y/y in February, matching the fastest pace in at least a decade for a third consecutive month.

Europe

• German industrial production rose a stronger-than-expected 1.8% m/m and 6.9% y/y in January, led by demand for construction and investment goods, the Economy Ministry said.

• European Central Bank council member Axel Weber said the ECB has little room to lower interest rates with the economy operating near full capacity and oil prices at a record. “The current policy stance in the euro area has to be judged as contributing to achieving our medium-term objective of price stability….Weaker growth prospects do not pose sufficient reason to expect a damping of inflationary pressures in the foreseeable future,” Weber said.

Asia-Pacific

• The Bank of Japan kept voted unanimously to keep its benchmark interest rate at 0.5% at Governor Toshihiko Fukui's final board meeting. The government nominated Deputy Governor Toshiro Muto to succeed Fukui.

FX Strategy Update