Evening Report-Feb 25.

Indian Rupee was largely steady in afternoon trade as gains in the local share market helped calm concerns of rising outflows, but some dollar demand from importers prevented a sharp rally. One-month offshore non-deliverable forward contracts were quoting at 50.01/11, weaker than the onshore spot rate, indicating a bearish near-term outlook. Despite brief bout of risk appetite which sent the dollar lower traders remain cautious which is returning support for the greenback. Chairman Ben Bernanke’s eased bank nationalization fears in his testimony to Congress but the impact of his comments have lessoned as weak fundamental data from Asia and Europe remind markets that the global downturn is deepening. The existing home sales report is expected to show that a slight increase as home prices falling 18.55% has started to bring buyers to the markets. However tight credit markets remain a barrier and could lead to a lower than expected print. President Obama in his address to Congress pledge the government commitment to boost lending which may raise hopes that the housing crisis could bottom in the near-term. Any significant increase in risk appetite should sink the dollar with its existing strong correlation to equity markets. The Euro reached as high as 1.2900 before final German GDP figures confirmed the country’s largest contraction in 22 years. Although the reading was in line with expectations, the sharp lower revision in exports to -7.3% from -0.2% raised concerns of future growth. The German economy is dependent on demand for its products and the deteriorating global demand is expected to continue to weigh on the economy. The Euro/Dollar has continued to remain range bound between 1.2500 and 1.3000 and with lingering banking concerns and an expected rate cut from the ECB we could see the single currency look to test the lower levels of the range going forward. Japanese yen fell against the dollar as a rebound in equities boosted investors' risk appetite. Additionally, bleak economic reports from Japan aggravated the weakness of yen .A government data released today showed that Japan logged its biggest-ever trade deficit in January, totaling 952.6 billion yen, with exports falling a record 45.7 percent, reflecting the severity of the global economic slowdown. Pound fell after the second reading of 4Q U.K. GDP confirmed that the country experienced its worst three month period of growth since 1980. Sterling had reached as high as 1.4600 before erasing its gains on the back of the bout of risk appetite that started in the U.S. markets. Although U.K. GDP figures remain unchanged at -1.5% versus expectations of a revision lower to -1.6%, weaker private spending figures raised concerns over future domestic growth. Additionally, the service sector which accounts for 70% of GDP also fell to -0.9% from -0.5%. The weaker consumption and service sector data will squash any hopes that U.K. domestic growth could rebound in the near-term. Therefore, the BoE is expected to lower their benchmark rate by 50 bps at their March 5th meeting with quantitative easing to follow as it attempts to spur growth. Meanwhile a report out of the E.U. has warned that the pound’s weakness against the Euro could destabilize the U.K. economy which contradicts Gordon Brown’s contention that it is beneficial as it would boost demand for exports.