Currency Focus

USD - It wasn't a major surprise in the Federal Reserve position. Everyone expected that the rate would not be changed. What was slightly surprising was the combination of the Federal Reserve saying that economic growth was picking up in the United States but inflation pressures were diminishing.
GBP - In the UK, BoE policymaker Timothy Besley was interviewed in the FT, noting concern that inflation will not fall as quickly as the central bank would like. He said that his decision to join the majority of the MPC in voting for January's 25bp rate hike was based on a "drip-feed" of data since the end of November. He regretted the surprise to the markets and noted that the hike was pre-emptive to avert more aggressive tightening later on. GBP to remains under pressure short term.
JPY - The JPY inched higher overnight on worries that the G7 will say something about the currency’s broad weakness, though with the relatively soft data constraining the BoJ it is difficult to see what the authorities can really do. The headlines are focussing on US Trsy Sec. Paulson’s comments that he is watching the Yen 'very, very carefully'. However, while traders could take this as the end of the 'carry trade', keep in mind that he also suggested that the soft yen is a reflection of the underlying fundamentals and that he does not think that Japan is manipulating their currency.