Evening Report-Jan 13.

Rupee fell and closed at 49.12 levels against U.S. dollar because banks bought greenback noting that local shares trimmed gains.Dollar demand from importers also dragged the Indian unit lower.However dollar sales from some exporters prevented further fall in the Indian unit.The Dollar continues to benefit from a flight to safety as markets continue to lower expectations for a rebound in global growth. The dismal labor reports last week has dimmed any hopes of a recovery on 2009 and lowered expectations for corporate profits. The U.S. trade deficit expected to have decline mainly duet o slumping oil prices which cut into the value of imports. However if part of the gain in trade was due to rising exports then it may increase expectations for global demand and offset the bearish sentiment prevailing on the equity markets. Fed chairman Ben Brernanke is scheduled to speak for the first time since the central bank lowered interest rates to the current 0%-25% range. The MPC’s leader’s comments could drive sentiment in the markets especially if he paints a dour outlook for the U.S. economy. However if the chairman believes that the measures that have been taken and the proposed fiscal stimulus plan are enough to lead to the economy to a return to growth, then we could see bullish momentum in the equity markets and possible dollar weakness. Euro started trading on the defense despite bullish comments from ECB President Trichet and the announcement that the German government agreed on the details of a 2nd stimulus package worth EUR 50 bln. The program will focus on increased infrastructure investment to increase economic activity and tax cuts. Meanwhile President Trichet at a meeting in Switzerland said that he saw a significant global recovery in 2010 which could be a sign that the central bank may limit their future easing. Expectations are that the MPC will cut rate by 50bps t its policy meeting on Thursday. However the S&P’s announcement that it may cut Spain’s debt rating and was looking closely at other European nations sent the single currency to the lowest level in a month at 1.3227 before it found support which sent it back above 1.3300 erasing earlier losses. Pound would reach a low of 1.4611 after the U.K. trade balance report showed an increasing deficit despite the Sterling’s weakness. The U.K. visible trade balance widened to a record low of -£8.3 billion from -£7.6 billion as exports to China and the U.S. declined. Meanwhile U.K. house prices fell another 8.6% while the RICS housing report showed home sales falling to a record low. It appears that BoE Governor King’s contention that the pound’s weakness will act as a stimulus for the economy isn’t holding weight as the sharp drop in global demand has led to the biggest trade deficit on record. yen rose to new peaks against its most major counterparts as yen is seen as a safe-haven in times of economic uncertainty as the falling stock prices and heightened risk aversion re-emerged as dominant concerns for investors. Unwinding of carry trades results in traders liquidating their investments and scrambling for yen to repay their yen-denominated loans, which pushes up the value of the Japanese currency.