Morning Forex Overview

The yen strengthened slightly against the dollar and euro in Asia Wednesday as the broadening fallout from Japan's nuclear reactor crisis weighed on share prices, increasing demand for the country's low-yielding unit, considered a safe-haven.

While the yen added slightly to its gains after the news about the tainted water in Tokyo encouraged further safe-haven bids, dealers said the currency should stay above JPY80.00 in coming sessions.

The euro was a little lower against the dollar and the yen, as it consolidated its recent gains. The single currency continued to be supported by expectations of interest rate hikes from the European Central Bank, after recent hawkish comments from ECB officials.

European Central Bank officials, meanwhile, continue to hint that the euro zone could see higher rates as soon as next month, helping the euro move Tuesday above USD1.42. The common currency encountered technical resistance at those levels and fell slightly against the dollar in late trading, but was still considered to be on an upward path.

At 0450 GMT, the dollar was at JPY80.90, down from JPY80.95 late Tuesday in New York. The euro was at JPY114.70 from JPY114.95 and at USD1.4175 from USD1.4195. The ICE Dollar Index, which measures the greenback against a basket of currencies, was at 75.55 from 75.50.

The Pound is off to a strong start this morning, breeching the USD1.64 level for the first time in more than a year, as inflation continues to accelerate. UK CPI registered a 0.7% gain month over month, bringing the annual rate up to 4.4%; far above the BoE's target of 2%. With inflation having now outpaced the Bank's target rate for 15 consecutive months, investors have again begun to price in higher borrowing costs into the GBP.

The Australian dollar hugged a narrow range in trading Wednesday with no local news to fuel change, while attention remained riveted to Japan's nuclear crisis and developing hostilities in the Middle East. Late in trading, the Aussie was slightly stronger compared with Tuesday, but market watchers said there was nothing behind the move, with no fresh economic reports released.

Market expectation
Dealers said yen's sharper rises would continued to be limited by expectations that any such gains could prompt Japan's Ministry of Finance to order intervention to curb the currency.

The dollar would likely hold in a relatively narrow band around JPY81.00 for the rest of the global day, dealers said, as investors hesitate to make major bets amid the continued uncertainty over the situation in Japan as well as the military operations in Libya.

Heading into European trading, all eyes are on a vote by the Portuguese parliament on austerity measures. The future of Portuguese Prime Minister Jose Socrates hangs in the balance; with some chance he may resign if his plans are defeated, pushing the government closer to a financial bailout by the European Union and International Monetary Fund.

European stock markets are expected to open lower Wednesday, as worries about Japan's nuclear crisis and the military operation in Libya continue to weigh on sentiment, while nerves creep in ahead of Portugal's vote on its austerity measures.

Most important events of the day
Mar 23 Count. Event For Unit Imp. Act. Cons. Prev.
10:00 EU Industrial New Orders Jan % y/y
10:00 EU Industrial New Orders Jan % m/m
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