The US dollar reversed some of Friday's losses ahead of today's FOMC meeting while sterling lost ground after monetary policy committee member, Kate Barker suggested that the UK could see a return to a quarter of negative growth, but she thought it unlikely that the UK would suffer a "double dip".

However, poor housing data for March, released yesterday morning has prompted fears that the UK could suffer just that, after posting a 0.1% rise the smallest ever rise for this time of year.

Rating's agency Moody's also warned that the U.S. and U.K. are "substantially" closer to losing their AAA credit ratings with both nations spending about 7 percent of this year's revenue on debt payments. They also expressed concerns about Germany and France's ratings. Moody's went on to warn that the withdrawal of stimulus could well "test social cohesion". As if to emphasise the point the EU will today publish a report that is critical of Britain and its plans to cut back its budget deficit.

Despite this warning which was also aimed at the US the US dollar rebounded on fears of further fiscal tightening in China as commodities continued to lose ground, while the Euro slid back even as European finance ministers met to discuss a framework to help Greece, if it was felt necessary, when they come to roll over their looming bond maturities.

There is still considerable discord amongst member states about the prospect of any type of bail-out with the Netherlands finance minister also coming out against, putting the Dutch firmly in the German camp who are also opposed to the idea. Today's German ZEW confidence figures are also due out today and expected to come in at 43.5 which would be the sixth monthly decline in a row, and prove to a further drag on the Euro. Eurozone CPI is also expected to show a month on month increase of 0.3%.

Today's Federal Open Market Committee rate meeting will show whether there is further debate about the sentence containing the "extended period" language. Thomas Hoenig, Kansas City Fed President voted for the removal of the phrase last month, and if further Fed members join him in voting against, or the phrase is removed completely, the markets perception about higher dollar rates will change and this could provide a further boost to the dollar.

EURUSD - the Euro continues to be capped with resistance now at 1.3780. Any close above 1.3800 could well precipitate a move towards 1.4000, but for the moment that seems unlikely.
After breaking below the old range highs at 1.3710/20 the single currency should look to re-target 1.3620. The key downside support remains at 1.3485 on a daily close, with interim support around 1.3710/20.

GBPUSD - Barker's comments about a possible slip back to negative growth has wiped out all of Fridays gains. Further concern about the UK's AAA rating and the failure to break above the Friday highs around 1.5200 has seen continued pressure on the downside, while a break and close above 1.5200 could well target 1.5330.
While below 1.5120 the pound could well slide back towards 1.4930.
The key downside level on the cable remains at 1.4850, the 61.8% retracement of the up move from 1.3500 to the highs at 1.7045. A break below here would re-target 1.4400, the 22nd April 2009 lows.

EURGBP - Watching the EURGBP cross is akin to watching paint dry as it continues to trade the broad range between the triple highs at 0.9150 being the key barriers to further Euro upside here. Last week's rally stalled at this level, and remains the key barrier to further sterling losses. Euro dips should find some buyers around 0.8980 and 0.9020.

USDJPY - yen repatriation by Japanese exporters has seen the dollar slip below the 90.20 support and the dollar could be set to drift further down towards the bottom of the cloud at 89.30. The upside will continue to be capped while the highs around 91.15 and the 200 day moving average at 91.75 weigh on the market.

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