Looking ahead, investors' focus will increasingly shift to tomorrow's ECB- and G20 meeting. Uncertainty remains high on whether the ECB will adopt unorthodox monetary policy measures. If so the single currency would likely come under major pressure, in turn increasing demand for the greenback. Such a development would, however, also support risk sentiment. Both additional fiscal stimulus and more resources for the IMF will likely remain key topics at the G20 meeting. Restructuring US car manufacturers is likely to affect foreign subsidiaries and as such the heat is on the Europeans to consider additional fiscal stimulus measures, although by and large leaders there have steadfastly resisted such pressure. The pressure is added to by Japan's latest fiscal stimulus package, which should be concluded by mid-April and will likely be of the order of Y20 tn, or 2% of Japan's GDP. Elsewhere, China's recent announcements of several bilateral cross-currency swap deals suggests a preference for going it alone rather than contributing meaningfully to the IMF, once again putting the onus for helping out Eastern European on the ECB.

Going forward, relative monetary policy may be creating an underlying bearish trend for the US dollar, but risk aversion and de-leveraging, both pushing in the opposite direction, are providing support. Clearly risk appetite is in flux with the events of this week, leaving the near-term outlook for the US dollar mixed.

The Eurozone jobless rate continued to climb, with the rising trend now entering its second year. February's rate showed an increase of 0.3%, coming in at 8.5% against expectations of 8.3%. The news comes on the back of yesterday's CPI data which showed a dramatic and unexpectedly large decline in the CPI to 0.6% from 1.2% the month before. The aggregate figure however masks differences between the member states, with Spain's February CPI data tipping into negative territory at an annualised -0.1%. Ireland also stands on the brink of deflation, the prospect of which looks increasingly likely following a rise in the domestic unemployment rate to 11%. Meanwhile all eyes will be on tomorrow's rate announcement by the ECB and subsequent press conference. UBS Economists look for a cut to 1.00% from 1.50% and we expect the unexpectedly large fall in inflation rates to trigger a major change in rhetoric at the press conference. Questions will likely focus on the ECB's attitude to quantitative easing, and investors will search for any signs of an emerging consensus on how it might be implemented and for it to be potentially market moving. In other news, PMI was broadly stable at 33.9, although it remains at extremely depressed levels.

The PMI reading showed some resilience overnight, coming in at 39.1 and well ahead of expectations of 35.0. It nevertheless remains deep in subdued territory, revealing a sharp contraction in manufacturing sector output. Nevertheless, our economists note that, encouragingly, the stock of finished goods fell to a record low suggesting that a near term output increase could be on the cards as firms are forced to rebuild inventories. MPC Member Blanchflower was on the wires to say that rising unemployment and not inflation is the economy's biggest problem right now, despite the recent CPI data showing that inflation remains high. Meanwhile the BoE's QE operations continue. Tomorrow's reverse auction will see the purchase of up to GBP 3.5 bln worth of gilts and, in an effort to improve funding conditions for UK corporates, the bank will also purchase 0.136 bln worth of corporate bonds. So far, sterling has not suffered markedly from the commencement of QE operations and we see the pound making gains, especially against the euro, as the ECB looks increasingly likely to implement its own brand of QE.

Japan: At -58 (cons. -55, previous: -24) the Tankan survey for the first quarter showed a worse than expected decline in business conditions. As we discussed in Pro Traders Club, this will weigh on JPY longer term. In particular the survey for large non-manufacturers showed a record quarterly drop in conditions. However, the capex outlook for the upcoming fiscal year was not as bad as feared. This suggests that Japanese companies think that current conditions are overstating underlying economic weakness. Elsewhere, Prime Minister Aso announced a new stimulus package yesterday, which will likely run for three years and may be worth 20 trillion yen, which would be well over 2% of Japan's GDP. The stimulus would create 2 million jobs and is expected to be compiled by mid-April.

Tags: EUR