UK Darling’s budget looming

US Dollar:

The Dollar rally that began fiercely on Friday failed to materialise yesterday as it hit resistance lev-els in against both GBP and EUR. EURUSD stopped short of the yearly low of 1.3430 at 1.3463 before re-bounding sharply to 1.3550. GBP followed a similar track, touching lows of 1.4932 and returning over 1.51 dur¬ing late New York trade. Cable has however given up a lot of its gains and is currently trading at 1.5020 as trad¬ers eye UK inflation figures. While rate hikes will certainly have a dramatic influence on price action in the future risk aversion is still firmly in control of market activity. Policy stimulus and growth potential are also two big fac¬tors in this outlook. Fed Board Member Lockhart forecasted a relatively solid 3 percent pace of growth through 2010. What’s more, the central banker said he would maintain the argument for removing the “extended period” language in future monetary policy meetings. On the other hand, he also forecasted a “gradual” deterioration of the dollar’s role as the world’s dominate currency.
DATA— USD Existing home sales (FEB) USD House Price index (FEB) FED Yellen speaks

Pound:

Sterling traders looked to February’s UK Consumer Price Index figures today for direction with the annual rate of inflation coming in at 3%. The Bank of England forecast in February that “inflation is likely to re-main significantly above the 2% target in the near term [after jumping to 2.9% in January], reflecting the continu¬ing impact of sterling’s depreciation and the restoration of the [value-added tax] rate to 17.5%” having been re¬duced amid the global recession of 2008-09. However, the BOE argued that “these factors should have only a temporary effect on inflation,” with sluggish economic growth likely to push the rate of price growth back to be¬low the target. This is well within the BOE’s previous projections and as such we expect and Sterling strength to be limited at best. As the headline number is lower than expectations we may even see prices drift off slightly. Further event risk will come from the UK budget statement by Alistair Darling on Wednesday. Recent govern¬ment borrowing figures are show a significant decrease in the amount required to fund the deficit with analysts looking for revision of between 5—20 billion GBP. This will certainly give Mr Darling room to breath but question remains, will he use it to try and buy Brown another term or will he be prudent and use it to repair our damaged finances.
DATA—UK CPI MoM/YoY (FEB) UK RPI MoM/YoY (FEB)



Euro:

As European policy makers fail to meet on common ground over Greece, and the German Bundesbank continuing to voice its opposition to bailout Greece, the lack of decisive action will continue to weigh on the sin¬gle currency. With inflation data released last week also showing EU growth to be at its lowest point since its creation, we can not disagree with market consensus that the Euro has some very serious issues surrounding it.
Data calendar is relatively light this week so traders will once again be looking to for any statements by EU offi¬cials for reasons to sell the single currency. The EU summit being held on Thu/Fri isn't expected to detail any solutions so expect further EUR weakness this week and next.
DATA— FRA Business Confidence Ind (MAR) FRA Production Outlook (MAR)

General:

• Obama is expected to sign the main senate health care bill today in a ceremony on the white house lawn. Surely good news for the 32 million uninsured Americans but at what cost to the US tax payer.

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BP/USD	1.5024
GBP/EUR	1.1107
EUR/USD	1.3518
GBP/JPY	135.76
GBP/AUD	1.6400
GBP/NZD	2.1257
GBP/ZAR	11.004
GBP/CHF	1.5935
GBP/CAD	1.5295
GBP/SGD	2.1051
GBP/THB	48.30
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