The dollar was mostly flat against the majors in intraday trading as Fed Chairman Bernanke and Treasury Secretary Paulson discuss the TARP before the House Financial Services Committee. The EurUsd slipped 10 pips to the low range of 1.26, while the UsdJpy rose 85 pips through the 97 level. The GbpUsd was mostly unchanged from the previous session, despite the economic data announced. Equity markets were higher in the US and Europe with the Dow higher by 150pts or a little less than2%, and the FTSE up 1.8% or 76pts. The bond markets were mixed with that short end of the curve wider by 1bp, while the yields on the longer duration securities decreased between 3‐5bps. Commodities were marginally higher with oil trading at $54bbl and gold at $736oz up less than 1% from the previous close.

Global deflation is emerging as a central theme in financial markets, with surprising economic news out of both the UK and the US. UK CPI came in much lower than expected at ‐0.2% vs. the est. of 0.1%. The sharp move downward shouldn’t divert the BoE from its monetary policy targets, as growth risks remain a key concern for the central bank. The Sterling failed to make any definitive moves, as Traders focus on the timeline for global recovery.

US PPI fell ‐2.8% which was more than the projected reading of ‐1.9%. Lower inflation and further deliberation regarding the future of the TARP plan will have a substantial effect on trends in the FX markets going forward. It is unclear in the marketplace if the govt. will widen the scope of the TARP to offer assistance to the auto sector. The US govt. is being very cautious in its actions regarding the TARP, as public is growing increasingly critical of private sector bailouts. It is likely that the aftermath of this reform will set precedent for the level of involvement by policymakers in failing institutions.

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