httpvh://www.youtube.com/watch?v=gBCwi0nRr3o

While we know all about the plans to cut the deficit here in the UK and similar in the Eurozone it was until recently that the US was on a divergent path; happy to see its fiscal deficit to plunge new depths. Last night a plan announced by President Obama tries to arrest this trend. The plan is to cut $4,000bn from the Federal Budget over the next 12 years through spending cuts and tax increases. It seems that these cuts are to target defence spending and payments to Medicare and Medicaid.

They need it as well with recent figures from the IMF suggesting that only Japan would have a larger fiscal deficit amongst advanced economies in the coming years. The dollar was slightly bid on the news but will remain under pressure in the short term.

Sterling had its best day in a while yesterday as the latest unemployment release came out stronger than expected. The ILO unemployment rate for the 3 months to February fell to 7.8% versus 8.0% in January and 7.9% in December while total employment rose 144,000 in the same period to 29.2m, the highest total in over two years. Sterling is not being given an easy ride of things at the moment and managed to move higher against its crosses against the euro.

The single currency is remaining strong on further hawkish chat from the ECB with Member Coene, head of the Belgian Central Bank, saying that Trichet gave a clear signal that ‘the rate hike was not a one-off’.

The sell-off in risk that we had seen in the past 2 days trading abated somewhat yesterday with traders coming to their desk in a slightly better mood although that may reverse today. Asian markets were worried over news from Greece that suggested they are going to struggle to raise money in the markets for a long time coming. This will do nothing to stop the rumours that Greece may default on its debt with a German newspaper that investors may need to take a haircut of up to 50%.

Data is quiet this morning while we will be watching US PPI later this afternoon to see if rate beliefs can keep EURUSD below recent highs.

Latest exchange rates at time of writing