The forex market has maintained the momentum established prior to the G7meetings over the weekend.

The underlying tone of a weak euro and a firmer yen is solidly in place. Overnight dollar/yen traded between 104 and 105 and is opening at 104.05. The euro is at 95.00 having lost the modest gains made at the end of last week. The key euro/yen cross is therefore at lower levels around 98.85.

"G7 has come and gone and the only thing that's left is a brief uncertainty about the yen," says Peter Von Maydell of

Credit Swiss First Boston

. Von Maydell thinks it was a mistake to look for a floor in dollar/yen as it is, "just a trade based on two years of macro trends."

The goal of both European and Japanese authorities would be to see this cross move higher and to stay well above the 100 yen per euro parity. Clearly, this has not been achieved, and many analysts see no positive options for the beleaguered euro.

Euro-zone inflation in March showed a 2.1% year-over-year rise compared with 2.0% in February. These data were above the

European Central Bank's

upper limit and provide a potential justification for a euro rate increase at the next ECB meeting on May 11. The

IFO Institute

reported that business confidence in Germany declined to 100.5 in March from 100.9 in February.

U.S. housing starts for March fell 11.2% after a revised 3.6% gain in February.

At the opening, the U.S./Canadian dollar ratio was holding at its best levels around $C 1.4870. Recent U.S. data have put pressure on the Canadian dollar as the threat of a bigger adverse interest-rate differential is now clear.

The dollar/Swiss franc has recouped losses made at the end of last week and is now trading in the middle of recent trading ranges at SF1.6535.

Sterling has remained on the sidelines at $1.5825.


, the preferred measure of inflation in the U.K., (retail price index without the volatile mortgage payments component) eased to 2.0% year-over-year. This is the lowest level since the series began in 1975 and clearly leaves the

Bank of England

(BoE) with little justification for further rate increases.

A leading BoE analyst said that the level of the pound is taken into consideration in assessing interest rate policy.

"The exchange rate is, (however), a major factor in setting monetary policy to achieve the inflation target," said John Vickers, chief economist at the BoE. Vickers does see a decline in sterling versus the euro based on interest differentials and the current overvaluation of the pound.

The Australian dollar continues to lose ground and saw overnight lows of $0.5890 before opening in New York at $0.5945. The $A remains under pressure with little strength in basic commodity prices and a negative interest rate differential with the U.S.

Von Maydell at Credit Swiss thinks that things may get better for the $A and, "it is probably near the bottom."

As expected, the G7 meetings have done nothing to affect the currency markets and traders have reverted to the well established pattern of, "muted yen strength against the dollar and greater yen strength against the euro," as Von Maydell puts it.