Treasury - Daily Forex for day 01.02.2007

The dollar started Wednesday's U.S. session stronger versus the euro, underpinned by data showing the U.S. economy grew at an annualized pace of 3.5% in the fourth quarter of 2006, above forecasts for a 3.0% expansion. But it weakened shortly thereafter following Chicago Purchasing Managers' index, which fell to 48.8 in January, well below expectations and to its lowest since April 2003, from December's 51.6. The dollar then extended its losses after the Federal Reserve kept its benchmark rate at 5.25%, as expected, but stated that U.S. economic growth and inflation were set to slow. The U.S. currency was also weaker against the yen after U.S. Treasury Secretary Henry Paulson said he is watching the value of the yen "very, very carefully". The yen weakness is likely to be discussed at a Group of Seven finance ministers meeting in Germany next week.

The crown firmed sharply against the euro yesterday, extending its recovery from a three-month low hit in the Tuesday session. The improved sentiment could also be observed on the other central European markets. The Finance Ministry raised slightly its forecast for GDP growth this year to 5.0% from previous 4.9%. In 2008, the ministry sees the economic growth also at 5.0%. However, the forecast for average inflation was cut to 2.4% in 2007 from 3.0%, while next year the inflation is predicted at 3.0%.