The euro is making gains on the back of heightened interest rate expectations, as well as a bout of dollar negative news. In the US, a bi-partisan group which had been formed to hammer out deficit reduction measures appeared to break apart heightening concerns over a vote expected to take place over the country’s debt ceiling. In Europe, talk of restructuring or re-profiling Greece’s debt signalled to some the beginning of the end of the crisis. Greece was even able to access short term debt markets while Portugal will attempt to access debt markets with a very short term auction. With no significant EU data on agenda, attention will likely be placed in the UK where the Bank of England minutes and employment figures are expected to be released.

Sterling

UK CPI data supported sterling initially, but the gains were not strong enough to last and sterling finished the day much where it began against the US dollar and euro. The rise in headline inflation to two and a half year highs of 4.5 per cent erased the small pull back seen in last month’s release. However, traders were left unsurprised by the figures since the Bank of England’s inflation report had clearly signalled that the central bank saw inflation heading to 5.0 per cent over the summer.

US Dollar

The US dollar was weakened on the back of soft economic data and news that budget cutting negotiations within the bi-partisan Group of Six had broken down with one of the six senators deciding to leave the discussion. US Treasury Secretary Geithner has warned politicians that tying the raising of the debt ceiling with budget agreements was a dangerous game. While threat of a default on US debt is still a couple of months away, he said the market sentiment could turn on a dime and build with such force that turning around markets would be even more costly.

Euro

The euro has made gains in the overnight session. German access debt markets with a two-month, €1bn auction of debt. Such a short-term auction offers little risk and the country is likely to find demand for its paper.

Japanese Yen

The Japanese yen opens weaker after equity markets turn positive in the Asian session. A return of risk appetite is helping to weaken the yen as Japanese investors look for higher yielding assets abroad.

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

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