httpvh://www.youtube.com/watch?v=yuQje5i9qnc

It probably seems like your reading the same update every morning with the consistent news about the Middle East. While it may have been bumped from top spot by the main broadcasters it is still the thing that is moving asset classes. We are dancing to the tune of crude, if I may.

Oil was once again elevated as conflicting reports spoke of further trouble in Saudi Arabia while Gaddafi bombed oil installations in his own country. The haven currencies, minus the US dollar, have continued to strengthen with the Swiss Franc hitting a record high against the greenback in trade yesterday. The yen also remains strong. The reason why the US dollar has fallen off is two-fold: investors are still worried about the financial position of the US in general with recent data suggesting a 3rd round of QE would not be out of place. We have also seen some liquidation of dollars by sovereign wealth funds into the currencies of oil exporting countries in order to benefit from these crude price increases.

This is leading to GBPUSD pushing on to 13 month highs while EURUSD is making 4 month peaks as well. GBP was bid higher on that dollar weakness but a high construction PMI number from the UK (56.5 vs 52.5 expected) saw the pound push onwards. It seems that the lack of volatility in recent house price moves has given some stability and confidence to participants but both are quite precarious at the moment with further house price volatility likely to lead to construction weakness.

Euro has been bid on the past few sessions on the expectation that we may see further hawkish chat from Jean-Claude Trichet and the rest of the ECB at their meeting this afternoon. While there is no chance of a rate increase the inflation picture continues to heat up with producer prices strong yesterday and last week’s PMIs suggesting upward price pressures too. Apparently the market is pricing in close to 1% of interest rate rises by the end of the year and given we expect no rate rise this year from the European Central Bank we like the euro lower from these elevated levels.

We’re also seeing increased pressure on Portugal to take a bailout with their bond yields continuing to rise although this is having little influence on the euro ahead of the ECB meeting.

Sterling has the capacity to fall off today should today’s services PMI release disappoint in light of poor consumer spending. The release is at 09.30.

Latest exchange rates at time of writing