At 8.30 a.m. EST, the dollar was sharply firmer following through on the growing belief that the outlook for the U.S. economy is still positive and that a soft landing can be achieved.

The expectation is that further rate increases (probably involving 25-basis-point moves) will continue to support the dollar. For the first time since the

Fed

action on Tuesday there are signs that the market is now willing to push the dollar higher.

Dollar/yen is opening in New York at 107.75, a gain of nearly 1% since the New York close. Japanese trade data for February showed a rise in the trade surplus but this is not regarded as a factor to support the yen as the surplus is on a longer term down trend.

The euro remains subdued and has eased to around $0.9650. The latest producer price data from Germany indicated a 0.2% rise in February for an annual increase of 2.4%. These numbers were in line with expectation.

European Central Bank

chief economist,

Otmar Issing

said that the euro's appreciation would, "almost inevitably" emerge once the euro zone economic growth moved close to that of the United States. He identified low inward investment into the euro zone and strong U.S. economic growth as reasons for the euro's softness. Euro/yen has moved in favor of the euro and is seeing levels of 103.95 compared with yesterday's closing of 102.45.

This morning, the

Swiss National Bank

raised its 3-month LIBOR target range by 75 basis points to 2.5%-3.5% from 1.75%-2.75%. The bank quoted strong economic growth, rising inflationary pressures and, "a continued weak trend of the Swiss franc." This rate increase immediately pushed the dollar down to SF1.6612 from its earlier levels at SF 1.6710.

Thomas Jelf, currency strategist at

Warburg Dillon Read

commented that, "the increase is much bigger than expected and the Swiss is back in play." He feels the SNB is keen to show its independence and is also concerned about inflation pressures.

Sterling has continued to recover against the dollar and is at its highs in London at $1.5810. This level represents a gain of 1.5 cents from the low seen early yesterday. Euro/sterling is little affected by these moves and is at 61.05 pence. The pound was helped by comments from Prime Minister

Tony Blair

that "to devalue sterling would be a big mistake." Blair also indicated that sterling would join the euro zone when it was in the long term interests of the country.

The Australian, New Zealand and Canadian dollars remain in recent ranges with no significant movement overnight. The Aussie is at $0.6035, the NZ dollar is modestly firmer around $0.4870. After touching highs against the $C last week, the dollar now continues to trade quietly around C$1.4710 following the

Bank of Canada

rate rise yesterday. This was a response to the Fed hike and this matching policy is likely to be maintained in the coming months.

Although the

Dow

and

Nasdaq

diverged yesterday, the forex markets derive some confidence in the dollar from the steady behavior of these indexes in the period since the Fed rate rise.

While forex market activity today has not suggested that the trend to a firmer dollar is established, it has supported the market's perception that the U.S. unit has bottomed and may now build a base for a rally. Traders will look to see if dollar/yen can hold over 108 and will await the Bank of Japan's "tanken" survey on April 3 to assess the strength of the Japanese recovery.