All eyes continue to be focused on Japan and how its government is going to deal with a worsening nuclear situation. The events unfolding in Japan are prompting investors to take a risk off approach to trade and are helping to lift the safe haven Swiss franc. The dollar’s losses seen against the euro have been modified in the run up to the FOMC rate decision. The Federal Reserve is widely expected to leave its policy unchanged, but investors will be keen to see if developments in Japan prompt members to be more cautious on their outlook for global growth.

Sterling

At a time when so much is going on in global markets, sterling has been blessed by a weak calendar of event risk, which appears to be helping to support the currency on the view that no news is good news. The pound moved higher helping to limit the gains which the euro was able to make against sterling. The euro managed to reach four month highs against sterling before running into resistance to further gains.

US dollar

Currency, equity and debt markets continue to try to get their heads around what is going on in Japan. The moment a feeling of calm is about to be restored another calamity arises. Equity markets dropped and safe haven flows into the Swiss franc and US dollar picked up. Aside from the catastrophe in Japan, there is still the instability in the Middle East to consider. Protestors across Europe are calling for the end of nuclear energy and in light of the political instability in the oil producing regions; lower oil prices look to be a thing of the past. This could help to cap any dollar gains on the back of safe haven flows.

Euro

The euro saw strong support throughout after the weekend summit announced plans to increase the capacity of the European Financial Stability Facility to €500 billion. Leaders also agreed to set up a more permanent fund of €500 billion to be used in the future. Lastly, loans to Greece were lengthened and the rates for the loans were lowered to levels that markets deemed more sustainable. Negotiations over loans to Ireland are still ongoing, but as of yet, there has been no break through for the new Irish government.

Japanese yen

The Ministry of Finance declined to comment on whether it had directly intervened in currency markets during the overnight session. However, a sharp spike higher for the dollar made investors believe that the government was behind the move. All efforts are being made to calm markets by adding liquidity.

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

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