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Even a ratings downgrade to Greek debt and fears over other periphery nations could not stop the Euro’s march yesterday. Prices continued to probe above the 1.40 level in EURUSD before coming lower in the afternoon while GBPEUR sank in to the 1.15s. The single currency is finding strength in the belief that next month’s ECB meeting will see an interest rate increase; a decision we think could be a disaster. An investor sentiment index also moved to its highest level since 07 yesterday, further supporting the euro.

The picture in oil markets remains the major influence of dollar weakness alongside interest rate differentials. Further rumour abounded yesterday that Gaddafi was bargaining with rebels for safe passage for him and his family but so far this has proved to be false and Brent crude remains above the $115 mark this morning. Gold also shifted to another all time nominal high yesterday of $1441 an oz as investors looked for havens.

Unfortunately the pound is not seen as a haven and was sold fairly comprehensively yesterday. Andrew Sentance’s replacement on the MPC was announced yesterday and the pound slipped somewhat as traders digested Mr. Broadbent’s monetary policy views. He is probably looking for an interest rate rise sooner rather than later and yesterday published a paper stating that household were less susceptible to interest rate rises now than originally thought. He is also however, in favour of a weaker pound to stimulate export markets. We think some of sterling’s weakness may be down to the fact that Sentance is the committee’s arch-hawk and once gone nobody will be fighting that corner.

There has been some GBP strength overnight after the Royal Institute of Chartered Surveyors showed that fewer surveyors were reporting falls in house prices than previously while activity was seen as flat for the first time after 6 months of falls.

It looks like we are in for a tough week for the pound with a retest of 1.60 in GBPUSD looking increasingly likely in the coming days as the dollar fights back from reports that it is over as a global currency. Whether they rename the dollar Mark Twain is unlikely however although rumours of the dollar’s death are greatly exaggerated.

Latest exchange rates at time of writing