The Japanese yen remains range bound against the majors

The *US dollar [1]* weakened on the back of better than expected
demand for Portuguese government bonds at today's auction, boosting
euro sentiment. Dollar weakness may be short lived as fears of a
European contagion are still at the forefront of investor's minds.

It is very possible that we may see the return of market fears driving
the euro lower as was evidenced last summer.
The *euro* climbed out from under a recent dearth of mainly dollar
positive data; though gains are expected to be short-lived after the
Portuguese debt sale did little to quell fears that some of the
indebted Eurozone countries will struggle to meet their funding needs
for the year. Attention now turns to Spain and Italy, who will sell
debt tomorrow in auctions that will also be closely watched for any
sign of an expanding debt crisis. Belgium is now also included in the
firing line due to political instability, having been without a
government for the past 7 months. The King is now involved in bringing
an end to the stalemate. Traders still expect the euro to retest its
Monday lows, with a break below likely opening the door to a decline
towards $1.2645 and $1.2590 in the coming weeks.

Also bolstering the euro were comments from Eurozone sources that
finance ministers are likely to consider next week raising the
effective lending capacity of the currency bloc's rescue fund as part
of efforts to calm jittery markets. If finance minister continue to
downplay the debt problems, then it suggests that officials are
getting further behind the curve, which would undermine the currency.

The *British pound* climbed to a one-month high against the dollar as
steady buying from Asian sovereign accounts helped to offset the
impact from data which showed Britain's trade deficit widening to
record levels.

Britain's trade gap widened to 8.736 billion pounds in November from
an upwardly revised 8.591 billion pounds in October. Imports of oil
and aircraft pushed the trade deficit to its biggest since monthly
records began in January 1980, contrasting with expectations for a
modest narrowing.

Today begins the two-day BOE Monetary Policy Committee meeting where
inflation expectations are likely to dominate the discussions though
no rate hike are anticipated until August at the earliest.

The *Japanese yen* remains range bound against the majors.
The *Canadian dollar* extended gains against the USD, rallying to a
fresh 21/2 year highs after breaking a key resistance level, boosted
by a global risk rally and talk of domestic rate hikes. A broadly
softer greenback and greater risk appetite with rising commodities and
equities are supporting the loonie's move higher.
The *Mexican peso* firmed to its strongest levels since October 2008
after solid demand at a Portuguese government debt auction eased
concerns about Europe's debt crisis, boosting riskier assets.
Mounting worries that massive floods in northeast Australia could
hamper growth were taking a toll on the *Australian dollar* driving it
to 1-month lows against the USD.
Source: Fxstreet.com