After the volatility of the past two days, the forex market has enjoyed relative stability overnight. As generally expected the European Central Bank kept the single currency zone's interest rates unchanged at today's meeting in Frankfurt, leading the euro to edge slightly higher but instilling little strong confidence in the beleaguered currency. (For more on the ECB decision, see's coverage of the meeting.)

Yesterday's headline currencies, the yen and the Australian dollar, have both stayed close to their New York closing levels of 107.13 yen and $ 0.6050 respectively. Dollar/yen lately stood at 107 and the Aussie is at $0.6098. Elsewhere other major currencies are little changed with the euro at $0.9720 and the pound is at $1.5820. The dollar's weakness has not abated but clearly the market is oversold on a short-term basis and is looking for further direction from forthcoming economic data and, primarily, from today's ECB meeting in Frankfurt which has just concluded.

There had been some movement toward anticipating a eurozone rate increase in the days preceding the meeting, but the balance of market opinion was accurate in expecting that the ECB wouldn't announce a hike. Earlier today, German Finance Minister Hans Eichel made remarks indicating he was looking to a stronger euro in the future. Similarly, ECB council member Klaus Liebscher suggested before today's meeting that the weakness of the euro would be a topic of discussion. The euro interest rate is currently 3.25% and there is some view that it should be raised to 3.50%.

While the euro has recovered from its Monday record low of $0.94, the unit still is seen as vulnerable. The general view that the European bloc will need to make major economic and market changes in the coming years to bring the region's economic performance up to competitive standards continues to undermine confidence. Neither is it felt that the ECB would be able to follow other short-term measures to support a weak euro.

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Clearly there is no consensus among European financial representatives in regard to strategies towards the currency. The comments noted above indicating some support for a euro rate hike were essentially contradicted by views expressed by French Finance Minister Sautter, who suggested that it would be preferable for the euro to rise on the basis of overall economic performance rather than under the influence of higher interest rates. Since the ECB announcement the euro has edged marginally higher to $0.9720.

Commenting on the lack of action from Frankfurt, a senior trader for a U.S. bank said traders are "befuddled" by the euro and yen and are very nervous about threats of intervention and other factors leading to wild volatility. Like many others he feels that the euro's chronic weakness cannot be eradicated until the performance of the European countries is able to match that of the U.S. This does not suggest a significant improvement in the near term.

Forex rates have shown little change this morning and the market seems to have paused to absorb the latest developments.