Previous session overview

The dollar rose against the yen in Asia Wednesday on hawkish remarks from a Federal Reserve official. But some traders said the U.S. currency's rise could be short-lived and it may head lower because in spite of the comments, it is highly unlikely for the Fed to hike its key policy rate for the time being.

Federal Reserve Bank of Philadelphia President Charles Plosser said earlier in the day that "an increase in rates must occur well before the unemployment rate or other measures of resource slack have diminished to acceptable levels."

His remarks prompted Asian hedge funds to buy the greenback, pushing it up to JPY91.07 as of 0450 GMT from JPY90.95 in New York Tuesday.

The Euro gained on the weaker than expected US Trade balance but suffered from general risk aversion provoked by risk aversion from the China news. The USD1.4500 level proved important once again as the market pivoted around the figure. Lingering fears still remain about Greece and Portugal and the market is still watching these developments closely.

The Pound firmed after data shows UK trade deficit narrowing. The pound gained ground after data showed the UK's trade deficit narrowing more than forecast, while a survey showed a strong rise in UK retail sales. The Retail sales data sparked optimism the UK may have exited recession in the fourth quarter.

Weighed down by a central bank decision in China, the Australian dollar fell in Asia trade Wednesday but recovered from its lows on hopes surrounding a Thursday jobs report.

Market expectation

Many investors believe the U.S. economy is not strong enough for the Fed to raise rates anytime soon, and such expectations could weigh on the dollar. U.S. non-farm payrolls data for December released last week showed 85,000 more people out of work than in the previous month, despite economists forecasting no change.

Looking ahead, investors will watch for an auction of 10-year U.S. Treasurys at 1800 GMT, analysts said. If demand for the notes turns out to be weak, the dollar may decline because such a result indicates non-U.S. investors' appetite for the bond is decreasing. Some traders expect the U.S. currency to soon head to around JPY90.00.

EURUSD continues to be seen within a basic USD1.4450/1.4550 range with stops said to have been built on a break out on the bottom side, though fresh demand reported to begin from around USD1.4440. Greek concerns continue as a counter to upside hopes with rate seen contained by two way cross flows. Resistance noted at USD1.4530 ahead of USD1.4545/60, with stops noted on a break of USD1.4570.

GBPUSD extends rally to USD1.6234 but move seen running into Asian reserve manager sell interest (though not seen as too large) placed ahead of the mentioned critical resistance area between USD1.6235/42. Technical traders suggest that rate may have initial difficulty clearing this area, though add that a break and clear to open a move on toward USD1.6275 ahead of USD1.6340/55. Stops are reported in place on a break of USD1.6250. Support USD1.6205/00, more toward USD1.6180.

European stock markets are expected to open marginally higher Wednesday, as traders shrug off the downbeat start to the U.S. earnings season and the People's Bank of China's increase in its reserve requirement ratio for banks by 50 basis points from Monday, the first such hike since November 2008.

Disclaimer: the data made available by Dukascopy (Suisse) SAis for informational purposes only. Publication of this data by Dukascopy (Suisse) SA does not constitute provision of investment advice and Dukascopy (Suisse) SA assumes no responsibility with regard toany information, forecast or recommendation herein contained and assumes no responsibility with regard toany losses resulting from any activities conducted the basis of this data, including any investment decisions.

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