Exchange Rates

"We have doubts that the USD strength can be sustained, and believe that Asian growth data should show more pronounced improvements in the months ahead, spurring greater capital inflows into the region.

"As such, we still feel that spikes in USD/Asia should be sold into.

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"However, we also acknowledged that in spite of capital inflows and positive BoP fundamentals, the downtrend in USD/Asia could be choppy if the USD holds up against the majors."

Looking at the markets at the start of the European session, currency markets were mostly indecisive during the Asia session, although there was a very brief episode of dollar buying when Richmond Fed President Lacker explained why he dissented again at Tuesday's FOMC.

"Lacker favours a rate hike in 2013. He has revealed this before, but this time the FX reaction was more apparent. We see this as a sign that Fed policymaking has overtaken Greece-related issues, and now occupies centre-stage in the minds of investors. As a result, the behaviour of US yields seems likely to become an increasingly important driver of FX markets," says Gareth Berry at UBS in today's morning foreign exchange rate.

The US dollar, does however, continue to enjoy support from strong data readings coming out of the US economy.

The downtrend in US jobless claims remains intact, with the latest reading for the week of March 10 dipping further to 351k (consensus 357k) - another four-year low.

The UBS US economics team expects the unemployment rate to drop to 7 3⁄4% at the end of this year and 7 1⁄4% at the end of 2013.

Looking ahead, foreign currency markets will today focus on the publication of economic indicators in the US.

Data for industrial production, consumer prices as well as consumer confidence will be announced.