Evening Report-jan 21.

The Rupee traded weaker as a drop in shares continued to fuel concerns about foreign fund withdrawls but the dollar's decline overseas helped prevent sharp losses. The dearth of fundamental releases on the U.S. calendar continues today with only the NAHB housing market index scheduled. The second tier indicator is expected to show a level reading of 9, which may be a signal that the housing sector has started to stabilize. However giving the mounting troubles of the banking system, credit conditions may start to tighten again which will make it formidable for buyers to secure funding. The lack of demand may push battered home values even lower which will only add to the woes of the economy. Therefore President Obama’s economic team is fast at work to develop a bank bailout package that will be implemented along side the already proposed fiscal stimulus plan. The call for action may help ease market fears and spark risk appetite which could lead to dollar weakness. Euro fell back to support at 1.2850 before another move higher. Risk aversion flows had the single currency on the run before Hawkish comments from ECB President Trichet and other committee members fueled support. The MPC leader would reaffirm his contention that the region was not at risk for deflation and that it should be disciplined and maintain its medium term perspective. The comments would reinforce earlier ones by committee member Nowotny that there are no plans for a zero interest rate policy. Pound dropped after climbing back above 1.4000, but failed to hold the level ahead of the BoE’s minutes and employment data as traders started to price in further rate cuts and quantitative easing from the central bank. The Sterling would fall to as low as 1.3715 after BoE Governor King in a speech in Nottingham stated that officials may need to start buying assets in the next few weeks to promote lending. Meanwhile the minutes from the MPC’s last meeting showed an 8-1 voted to lower the benchmark rate by 50 bps, as perennial dove David Blanch flower called for a full %1 reduction. The tight credit markets continue to impact the economy which was evident in the employment report which showed jobless claims of 77,900. The troubles of the banking system may ultimately force the government to nationalize banks and start buying corporate bonds and commercial paper to improve lending to businesses and consumers. Despite inflation remaining above the central bank’s 3% threshold, Governor King still sees the risk of it falling below the 2% target which would justify lower interest rates and quantitative easing. yen strengthened to 89.61 levels