Evening report-Mar 04.

Rupee strengthened and closed at 51.54 as Reserve Bank of India countered a squeeze on cash from its dollar sales to stem the currency's slide which would also minimise the impact on the market of a large increase in government debt issues.Indian rupee is hit by the inability of local firms to refinance short-term foreign loans, capital outflows from financial markets, falling remittances as overseas Indian workers lose their jobs, and a deteriorating economic outlook.U.S dollar benefited from a flight to safety following the Australian GDP figures, it has begun to give back some of its gains. However the economic calendar could reverse trader sentiment as the upcoming ADP and ISM Non-manufacturing reports are expected to show the U.S. economic recession is deepening. The private employment report is forecasted to print a job loss of 630,000 in February. This will lower expectations for Friday’s Non-Farm payroll release which could continue to fuel risk aversion and bullish dollar sentiment. Meanwhile the service sector is expected to have contracted for a fourth straight month in February with a print of 41.0 after 42.9 the month prior. Further deterioration in a sector which accounts for more than 70% of U.S. GDP may also weigh on the growth outlook for the economy. U.S. Secretary Treasury Tim Geithner’s resuming his testimony today and the Fed Beige book report also present event risk for the dollar. Euro broke below 1.2500 for the first time but immediately bounced back above the support level. A better than expected final PMI service reading has lent support for the EURO as it was revised higher to 39.2 from 38.9. However the breach of such significant support could signal more losses for the single currency especially with the ECB expected to cut rate tomorrow. . President Trichet has been leery of lowering rates close to zero for fear that it would trap the MPC and leave it without further recourse. Yet some are speculating that the impact of the sharp decline in Eastern Europe will weigh on their western counterparts and the MPC will have no choice but to aggressively cut rates and consider quantitative easing Pound fell to 1.3997 on a weaker than expected Australian GDP release which reignited concerns over global growth. However positive equity markets an improvement in consumer confidence and a better than expected PMI service print has helped Sterling reverse earlier loss. The February Nationwide consumer confidence report improved for the first time in five months to 43 from 38. Meanwhile the U.K. service sector improved for a third straight month to 43.2 from 42.5, but remains well below the boom/bust level of 50. Despite the signs that the U.K. economy may be stabilizing the BoE is expected to cut its benchmark rate tomorrow by 50 bps to 0.50%. The central bank is also expected to receive permission from Chancellor of the Exchequer Alistair Darling to begin quantitative easing. Yen weakened to more than 99 per dollar for the first time in almost four months as stock markets rose across Asia and Europe, reducing the allure of the currency as a refuge from the financial turmoil and on the back of the gloomy outlook of the Japanese economy, weak global economy would ultimately lead to a decline in exports.