The dollar temporarily strengthened through 1.19 in Asian trading on Friday before retreating back to 1.1920 in early Europe. There is the potential for structural… … Euro demand below the 1.19
level against the dollar.

The US trade deficit rose to a
record US$68.5bn for January from a revised US$65.1bn in December as exports and
imports both reached record levels. There were no major surprises within the
component data with high oil prices and underlying import demand exerting steady
upward pressure on the deficit while the monthly shortfall with China was close
to US$18bn. The markets are still focussing on yield considerations and this
offered protection to the dollar, although the longer-term dollar risks from a
further increase in the deficit should not be dismissed.

The latest jobless claims data
recorded an increase in claims to 303,000 in the latest week from 295,000
previously, the highest level for six weeks. Nevertheless, this still indicates
a generally firm labour market and will maintain optimism over the Friday
employment report. A strong report would reinforce confidence in the US economy
and bolster expectations of further US interest rate increases. The earnings
data within the report will also be important for the Federal Reserve and for
interest rate expectations.

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