Evening Report-Feb 20.

Indian Rupee continues to trade weaker although it seems to have recovered partly, and closed at 49.74 against the dollar.The non-deliverable forward dollar/rupee rate was up tracking the greenback's rise against most other global currencies such as the euro and pound sterling . Overall the market is quiet today because of the strike by RBI officials.The U.S. government Inflation data is scheduled to cross the wires today and economists are forecasting that prices rose 0.3% in January, which would be the first increase since July. Despite the expected monthly increase the annualized reading is expected to fall to -0.1%.The tick up in inflation in January could be a sign that prices are stabilizing but the continued deterioration in the labor market and further contraction in the global economy should lead to prices falling further. Nevertheless, higher inflation could remind traders that interest rates near zero and the government pumping dollars into the system are a recipe for future inflation and may raise interest rate expectations which would add to current bullish dollar sentiment. The greenback has benefited from risk aversion flows as equity markets continued their decline during Asia and European trading. The Dow has completely retraced all of its gains since the November lows and now that it has broken below the support level more losses may be ahead which could drive the dollar to surpass its highs. Euro found support after it fell to as low as 1.2563 despite a weaker than expected PMI reading. Indeed, the region saw continued weakness in manufacturing and services which were both forecasted to improve, sending the composite down to a record low of 36.2 from 38.3 in January. The indicator is a strong forecaster of future growth trends and its continued weakness raises doubt of a rebound in growth by the end of 2009. The weak data will also increase expectations that the ECB will cut rates at their March meeting. The central bank leader has maintained his call for patience which may signal that the central bank won’t cut rates by more than 50 bps, despite markets calling for more. He would also refute contentions that Ireland is a weak link in the economic union, which has been a growing concern. Indeed, many fear that the single currency could be in jeopardy as the weaker nations call for more aggressive actions while a stronger Germany and France prefer to take a measured approach and guard against future problems. British Pound jumped to test 1.4320 on a better than expected retail sales print which saw consumption rise 0.7% in January. Consumer spending rose for a second month as Britons increased purchases of textiles as retailers continued to slash prices. Sterling fell to an intraday low of 1.4150 on the back of continued weakness in equity markets and risk aversion flows. Mounting job losses may make it formidable for British consumers to maintain their current pace of spending. Although strong domestic consumption could help growth rebound, considering the depth of the current recession we should see Britons retrench going forward. The BoE is expected to lower its benchmark rate at its next policy meeting and embark on quantitative easing which could limit the pound’s upside potential. Yen rose against the dollar as falling company earnings fueled concern the recession is deepening prompting traders to buy the currency as a refuge.yen is attractive in times of financial turmoil because Japan’s current-account surplus reduces the country’s reliance on overseas lenders. The currency also typically gains before end of financial year as some institutions sell foreign assets in favor of yen-denominated holdings to bolster balance sheets as they prepare to report to investors. .