Evening Report-Feb 06.

Indian Rupee firmed up in the early trade due to recovery in stock markets amid weak dollar overseas. The currency was trading in a narrow range with downward bias and closed at 48.68 levels as the attention was focused on the fate of the US stimulus package. U.S. dollar has been under some pressure as risk appetite crept back into equity markets, but that may change with the Non Farm payroll report expected to show the economy lost another 540,000 jobs in January. Earlier indicators signal that we could see a greater than expected loss, as jobless claims jumped above 600,000last week and the ADP private jobs report printed at –522,000. Although a deteriorating labor picture is typically a recipe for a flight to safety, there comes a point where markets look beyond the lagging indicator and focus on the prospect of a rebound in growth. Additionally, speculation that the mark to market riles may be relaxed has eased some of the fear regarding banks, as it would lessen the impact of toxic assets on their balance sheets. Euro sold off after the ECB held their benchmark rate at 2.00% but signaled that a 50 bps cut was likely at their March meeting. President Trichet made it clear that the ECB has no intention of employing an zero interest rate policy and that if the central bank would cut rates at their next meeting it may be their last. Nevertheless the central bank head acknowledged the severity of the current downturn, which was reinforced by the dismal German industrial production numbers for December. Activity dropped 4.6% following a revised 3.7% decline the month prior, which dragged the y/y down to –12.0%. Pound tested around 1.4768 levels but has since pare some of its gains as a weak industrial production report and looming . Activity in the U.K. fell 1.7% in December after a 2.5% the month prior, and below estimates of –1.2%. The lack of demand and falling oil prices have raised deflation concerns which were reinforced by prices at the factory gate easing to 3.5% from 4.6%. The pound has found support following the BoE cutting its benchmark rate by 50 bps, as speculation has increased that it may be the end of the central bank’s easing cycle. However, the committee also painted a dismal picture of the current state of the U.K. and global economy, as credit markets remain tight and weakness spreads to emerging markets. The dollar fell against the yen after surging higher the previous day, with the market cautious before key jobs data that was expected to paint another grim picture of the U.S. labour market.