"When spider webs unite, they can tie up a lion." - Ethiopian proverb

FOREX MARKET
On January 31st, the Federal Reserve maintained its policy rate at the current level of 5.25%, as widely expected by the market. Fed's FOMC meeting hurt the greenback and poured cold water on the expectations towards a rate hike this year, as the statement was a bit more dovish on inflation and a bit more hawkish on growth. Fed underlined that core inflation readings "have improved modestly" lately, suggesting that they expect even more inflation deceleration is the next months. The economical growth in US surprised the market watchers to the upside in the fourth quarter of 2006, as GDP soared by 3.5% q/q vs. 3% consensus estimates.
We see the Fed keeping the policy rate on hold in the first semester, with high chances for a rate cut towards the end of the year, but not before the unemployment rises. On Thursday, the euro tested the 1.3030-1.3040 resistance zone, which held by now, however it might be broken later if the US ISM fells below expectations.
On January 31st, the Romanian currency stayed flat as compared to previous day levels, probably because off-shore investors refrained from opening new positions ahead of Fed's FOMC meeting. The forex market opened at 3.4060 level and stabilized within this zone, ranging less than 50 pips in either direction amid silent trading. RON ended slightly stronger, in the 3.4000 zone, as the recovery of ON interest rates supported the domestic currency.
On Thursday, the domestic forex session started in the 3.3950 zone, 50 pips lower than yesterday's closing level, mirroring the appreciating path of other emerging currencies. By noon time, the Romanian currency reached until 3.3900 area and seems like it could further appreciate until the end of the week towards 3.4850 zone.

MONEY MARKET
On February 1st, the overnight interest rates rose slightly, reaching to 6/7.5% bids/asks, due to the bond auction to be held today by MF. The Minister of Finance intends to attract RON 1bln from the primary market through an issue of benchmark bonds on a three-year maturity, which will be carrying a fixed coupon of 6% paid annually. We expect the average yield not to exceed 5.5%, due to the high interest for the Romanian debt instruments.