The primary driver for currency markets is the diverging outlook for interest rates. Hawkish comments from one European Central Bank MPC member support the view that interest rates in the euro area will rise.

Sterling

Sterling has seen two days of data free trade. Sterling managed to take back earlier losses, which had placed it at five-and-a-half-month lows against the euro.

US dollar

The US dollar index continues to linger near 16-month lows. The dollar found a short-lived reprieve from selling when focus shifted back onto the European debt crisis. Fears were stoked as investors looked forward to the Finnish Parliamentary election and after Germany’s FinMin appeared to suggest restructuring of Greek debt was still on the table. The dollar’s advance was short lived, however. Economic data released later showed softer than expected inflation data and weak jobless claim figures.

Euro

The euro has maintained its higher ground despite renewed fears over the debt crisis. The diverging outlook for interest rate differentials between the European Central Bank and other central banks is helping to lift the euro. The outlook was supported by hawkish comments from one European Central Bank official. The euro saw a short round of selling pressure when investors became nervous over comments made by the German Finance Minister. Restructuring of Greek and Irish debt could be back on the table after the German Finance Minister said in an interview that “additional measures” to deal with Greek debt may need to be taken if a report due out in June showed that the current situation was unsustainable.

Japanese yen

The Japanese yen has seen very little trading activity despite Chinese data showing strong growth and inflation figures. The Chinese Premier, in a rather dovish statement said that he would prompt internal consumption. The comment is good for broader market sentiment. Economic data released in Japan showed February industrial output revised sharply higher. Sadly, it will likely be the last of the upbeat figures to see for sometime in the future since the devastation of last month’s earthquake will now begin to feed into data

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

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