Markets are taking another look at the legacy of former UK Prime Minister Margaret Thatcher, following her death, paying particular attention to her stance on Britain’s relationship with Europe. But despite the debate underlining concerns about the single-currency project, the euro was underpinned by a rise in demand for eurozone government bonds, triggered by the Bank of Japan’s decision to pump a massive amount of liquidity into the Japanese economy as it tries to create inflation quickly.Sterling experienced some profit-taking on its recent gains, although its direction is likely to take its cue from UK manufacturing and industrial output data. The figures may reinforce the pound’s recovery if a positive rebound in British factory activity feeds hopes the economy returned to growth in the first quarter.

Sterling

Profit-taking weakened the British pound but sterling could bounce back with the latest data on Britain’s manufacturing industry forecast to show a recovery in factory output, and a lower chance of the UK economy recording another quarter of negative growth. According to median estimates, manufacturing output increased by 0.3 per cent in February after falling by 1.5 per cent in the prior month, which underlined fears that Britain was heading towards a triple-dip recession. Positive data may not be a bullish signal for the pound but should, at least, help protect the currency’s downside after it rose to a six-week high against the US dollar.

US dollar

Federal Reserve chairman Ben Bernanke gave markets few signs about future US monetary policy in his after-hours speech, choosing to focus more on banking regulations and less on how the US economic recovery will influence the Federal Reserve judgement on how to kerb its month-on-month monetary easing strategy. Instead, attention stayed on Japan and its aggressive move to stimulate the Japanese economy, which took the US dollar to May 2009 highs against the yen during trade.

Euro

Euro area government bonds rose, giving the euro another short-term lift with flows into the region being triggered by the Bank of Japan’s decision to pump a massive amount of liquidity into its economy as it tries to create inflation quickly. The impact has been global, with traders responding by bidding for high-interest government bonds which took the euro to fresh three-year peaks against the yen.

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