Drive for currency markets shifted away from the outlook for interest rate differentials to geopolitical tension as violence escalated in Egypt. It is hard to say which of these two factors will drive trade, since investors will also face harsh reminders of the European debt crisis. The cocktail of forces behind market movement could make for an extremely volatile session, particularly with the ECB monetary policy committee meeting and following press conference which will give Jean-Claude Trichet a platform to preach his hawkish tendencies. Not only is there a central bank meeting, but there are several data points in the US, UK and euro zone to consider.

Sterling

Sterling is doing a fine job of holding close to three-month highs against the US dollar. Hawkish comments and economic data helped support the pound, with Governor Charles Richard Bean stating rising commodity prices could force the MPC to raise interest rates.

US Dollar

Currency markets traded on the outlook for interest rates differentials up until protests in Egypt turned violent. The demonstrations in Egypt had only been moved to the side of investors’ radar screens, as soon as violence picked up, the dollar took back some of its losses as attention shifted back onto geopolitical tensions, prompting safe haven flows back into the buck.

Euro

The euro may have seen its top, with investors finding it hard to forget the magnitude of the European debt crisis. S&P downgraded Ireland’s sovereign debt rating, as that country faces general elections. A meeting in Brussels is expected to yield an outline for solving the European debt crisis in front of the summit scheduled to take place the end of March. The meeting and any comments coming from it will be a sore reminder to investors that debt problems in Europe have not disappeared.

Japanese Yen

The Japanese yen has been trapped in exceedingly quiet ranges for most of this week. There has been little on the data front and comments from Band of Japan members seem to have little impact.

Travelex Global Business Payments Malta, freephone: 800 733 22, www.travelex.com/mt/

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