Daily Currency Report
Market overview
The US dollar fell against the major currencies as downbeat economic data cast doubt that the Federal Reserve would continue to tighten monetary policy. The major event this week will be the 2006 UK budget.
GBP
Sterling hit a seven-month low against the euro as it's interest rate advantage over the single currency looks set to shrink. The Bank of England is expected to keep rates at 4.5 per cent for most of the year. Meanwhile, traders are backing the ECB to raise interest rates to at least three per cent.
USD
With interest rate expectations shifting, the dollar was heavily sold-off as US consumer inflation came in significantly lower than expected. With markets anticipating the Fed's monetary tightening cycle to be ending, the greenback may come under further selling pressure.
EUR
Annual German Producer Price inflation rose to its highest level in almost 24 years in February, boosted by higher energy costs and increases in prices of metals. The concern is that these inflationary pressures will feed through into consumer and wage inflation and is likely to increase interest rates.
JPY
The Japanese yen has begun to strengthen as changing interest rate expectations have led to the unwinding of "carry trades", where investors borrowed the yen to invest in higher yielding currencies.