Weekly Currency Roundup

Jan 30-Feb 3, 2011
International Markets:
This week the euro sustained the strong rebound against the USD. However the euro dipped against the dollar on Thursday as investors took profits ahead of a European Central Bank meeting, but analysts said hawkish rhetoric from the bank could lift the single currency back towards a 12-week high. The euro could gain even more if US Federal Reserve Chairman Ben Bernanke, who is due to speak later on reaffirms the Fed's focus on boosting growth, reinforcing expectations the ECB will be ahead of the Fed in raising rates. Analysts said an upward revision to a euro zone services PMI and lower yields at a Spanish debt auction were positives for the euro, but the focus on the ECB meant the euro barely reacted.
Market players will be looking for hints on when euro zone interest rates might rise, given ECB President Jean-Claude Trichet's recent warnings on the need to tackle inflationary pressures. Accelerating inflation and funding problems for peripheral banks are set to top the agenda at the meeting. He said it would be difficult for the ECB chief to tone down his recent warnings on short-term inflationary pressures, given data has shown inflation accelerating in the euro zone. Some analysts warned that expectations of hawkish ECB rhetoric may have built too much, leaving room for disappointment and posing downside risks for the euro. Elsewhere, sterling hit a three-month high against the dollar after strong UK services PMI data bolstered the case for higher interest rates. The Australian dollar was up 0.5 percent at $1.0127 after strong Australian trade data, though the New Zealand dollar fell 0.7 percent after weak New Zealand jobs numbers.
Local Money Market:
Call money rates further eased off this week, and mostly traded in the 4.5-5.5% band.
Local Market FX:
There was significant liquidity pressure, and there was strong demand for the greenback.

-- Standard Chartered Bank