Ben Bernanke head of the US Federal Reserve predictably kept policy on hold whilst reducing forecasts for unemployment and raising expectations for higher near term inflation. The US economy is still expected to grow at a ‘moderate’ pace in coming quarters, with the bulk of Fed members predicting the first tightening in 2014 or beyond.

The one concession to markets was the fact that the Fed is ready to do further in terms of policy development if required.

This helped to boost risk assets overnight leaving the Greenback on the back foot.

Headline releases are thin on the ground today leaving markets to consolidate gains in a relatively ‘risk on’ environment.

Sterling came plummeting down from its summit following yesterday’s news that the UK economy entered a technical recession after GDP unexpectedly contracted by 0.2% in the first quarter of the year.

Nevertheless, the fall was short lived, with Cable improving from its losses, helped by a superb reading for UK Nationwide consumer confidence in March.

However, Nationwide cautioned that the spring in confidence may be brief and therefore cautious of reading too much into this.

Sterling gains against the euro look as though they have reached its limit.

Finally, there was no adjustment in policy from the Royal Bank of New Zealand as expected, with policy rates on hold at 2.5%.

However, governor Bollard did endeavour to talk the kiwi lower while stressing worries about the international outlook.

Concerns about kiwi strength will raise the spirit of FX interference though it may also mean a delay in rate hikes.

The announcement was fairly encouraging on the domestic outlook too.

Even though rates are ‘appropriate’ according to the RBNZ there is a good chance of a rate hike in Q3.

The NZD ignored Bollard’s comments, firming on the back of improved risk appetite.

Following an indifferent Asia trading session overnight where Japan kept interest rates at 0.1%, the market now awaits key data from the Europe and the US to drive sentiment for the rest of the week.The Greek debt swap deal has certainly added to this lack of direction providing little motivation to the markets yesterday.

The deal that amounted to a swap of £149 billion worth of bonds for a mix of new instruments ranging in maturity from 11 to 30 years had a relatively low uptake leading to bond yields from 14-19 %, the highest in Europe.

It appears the market is sceptical about this latest attempt by the Greeks to fend off their inevitable default and thus is looking for higher yields over shorter periods.

The euro continues its resilience at currently trades at 1.3142 against the Dollar.

Elsewhere in Europe today we have the German ZEW survey where we get an insight into medium term forecasts about Germany’s finances.

Over to the US and the Greenback should not be concerned by tonight’s FOMC meeting.

We may see the Dollar rally if Fed Chairman Bernanke is slightly more positive in his statement with further support from increasing theories that the Fed will begin on some form of sterilised QE shortly.

This coupled with expected stronger retail sales and positive National Federation of Independent Business (NFIB) report of small business bodes well for the US recovery and for President Obama in an election year.

Finally the UK Job market may be “turning the corner” according to a survey completed by recruitment firm Manpower.

The news comes ahead of the latest data tomorrow which are expected to show a further rise in unemployment.

Positive sentiment can now be found around the country in the East Midlands, North West and particularly London due to the Olympics.

Today Sterling is slightly firmer against the Euro and the Dollar trading at 1.1917 and 1.5667 respectively.

Another expectation beating employment report from the US on Friday has the markets in buoyant mood this morning. The headline number was 227K jobs created in February against a forecast of 210K, with strong upward revisions to both December and January numbers.

This marks the third straight month of strong jobs growth with gains spread across different sectors of the economy.

One negative was that construction jobs showed flat growth for the first time in a couple of months.

Interestingly we have again seen the Dollar strengthen on the back of positive US developments, which flies in the face of the risk-on, risk-off paradigm that has dominated FX trading in the US Dollar over the last few years.

Commodity currencies initially surged on the news but have cooled off as we start the week.

Looking ahead this week we have several big ticket releases to look forward to.

Tomorrow German economic sentiment is followed by US advanced retail sales and the Fed interest rate decision.

The market expects a strong increase in retail sales from last month and Friday’s employment report is fuelling further optimism of a stellar number.

The risk therefore is to the downside in terms of the Dollar if we get a disappointing figure.

The FED meeting should be a non-event, but talk about sterilized QE over recent days by the Fed Chairman will keep market interest high.

Also worth watching is the Swiss Interest rate decision, not for interest rates directly but for chatter over an increase in the Swiss Franc peg which, if undertaken, would cause significant movements across the FX markets.

Sentiment remains the primary driver of the euro as the single currency sold off sharply in afternoon trading yesterday after Eurozone members decided to delay more than half of the €130bn Greek bail-out funds.  A decision that was supposed to finally put to bed the Greek issue, at least for a couple of months, has managed to calm volatile markets for less than two weeks.

Thirty eight different measures need to be implemented by the Greek government before the remaining €71.5bn is handed over.

This may be as early as next week. But slicing the payment in two allows hardliners in the Netherlands and Germany a foot in the door and the potential for further delays.

It is this uncertainty which is hurting euro sentiment and pushing the Sterling pair back towards the 1.20 level.

Sterling remains stuck in recent trading ranges and as expected this week’s construction and manufacturing PMIs have not moved the Pound at all.

The manufacturing number was lower than expected and was cancelled out by better than expected construction figure this morning.

Next week is huge for big ticket data with the ECB and Bank of England rate decisions and the US non-farm payrolls the highlights.

Encouraging economic developments provided wise money markets with an appetite for risk again. Despite weaker than expected US durable goods orders, a rise in US consumer confidence to its highest since February last year provided stock markets and risk assets with an overall a boost.

It was a similar story in Europe as Italy held a successful auction of 10-year debt at a lower than expected cost at the same time as Portugal approved a third review of its bailout agenda.

However, there was some negative news, with the ECB momentarily deferring the eligibility of Greek bonds as security for its backing and Eire calling a referendum on the European fiscal compact.

Nevertheless, expectations of a strong take up at today’s ECB second 3-year Long term refinancing operation (LTRO) should keep markets on the straight and narrow for the rest of this week.

As for the US Dollar and given the upbeat equity market mood overnight it is no shock that the Greenback was on the slide as the euro appears determined before today’s 3-year LTRO by the ECB.

Bernanke’s Semi-Annual Monetary Policy Report later today will provide the Dollar some bearing but no major surprises are expected.

The euro will continue to rally against the US Dollar if we are correct about a strong euro 600-700 billion take up at the LTRO but it will interesting to see if the 1.35 level can be breached.

The Bulls charged back into the money markets ring yesterday as they took a more optimistic view on global growth, in addition concerns on the euro zone debt crisis eased.   The move into risk was prompted by a series of positive manufacturing reports from around the globe, in particular China’s PMI data remained positive.

The Pound was bolstered by a rise in manufacturing activity for the UK last month showing output expanding at the fastest pace since March last year- this helped the Pound hit a 2 month high against the US dollar.

In fact the US dollar lost across the markets, a rise in US manufacturing activity alongside China’s data helped swerve the markets into risk on mode which is US Dollar negative.

Not surprisingly the US Dollar lost against the usual suspects- the Pound, Euro, Australian dollar and other commodity based currencies and emerging market currencies.

Surprisingly the US Dollar was also down against the safe have Yen and Swiss Franc-  this was due to nervousness on the threat of intervention by the Bank of Japan and the Swiss National Bank.

The current USD/JPY levels are very close to previous levels where the BOJ intervened in October.

In addition EUR/CHF is dangerously close to the 1.20 peg- currently trading at 1.2045- the SNB has said that it will intervene to weaken the Swiss Franc at the 1.20 level.

One to watch for the remainder of this week.

The US FED Reserve’s minutes from the meeting earlier this month were released yesterday evening and after several months of treading water the Fed decided to change its wording on interest rates. The Fed now plans to keep rates at extraordinary low levels until the end of 2014, which is a year further than their previous stance and signals to the markets that the Fed will continue to provide a huge amount of monetary support even as the economy is recovering.

The consensus was that the Fed would begin to withdraw support once they thought the economic recovery had gained traction but yesterday’s announcement has realigned the market view to expect low interest rates for a long time to come.

The immediate reaction in the markets was positive with stock markets rising and a large move in the EUR/USD pair from 1.29 to over 1.31, which given the size of the move we can expect slight retrace back towards the 1.30 level during today.

On this side of the pond, the UK economy contracted by 0.2% in the previous quarter, which was slightly more than the consensus estimate of -0.1% but not large enough to overly worry the markets given than ONS regularly adjusts initial GBP readings by over 0.1%.

In the lead up to the announcement Sterling was sold off across the board quite heavily but once the data was announced we saw a broad recovery in Sterling throughout yesterday.

The Bank of England minutes gave no more clues about when further QE might be launched, the Governor did a good job in the proceeding days to forewarn the market that QE is still on the table without specifying exactly when it might start.

Positive German business climate data was the main driver of the currency markets yesterday morning but the rally ran out of steam once the US opened and focus turned to the impending release of the Fed minutes.

Friday afternoon saw the US economy post 200,000 new jobs in December, making that the sixth consecutive positive month according to official figures. This came much higher than the anticipated 150,000 jobs and reduces the overall unemployment rate down from 8.7% to 8.5%.

The main areas of job growth were seen in retail, manufacturing, transportation and warehousing and healthcare.

The news did not help the euro’s cause as it continued its decline against the Greenback falling below under 1.27 for the first time since autumn 2010.

US markets also struggled with the Dow Jones and S&P 500 indexes both closed lower as they remain concerned over the eurozone debt crisis.

The report did however provide some political collateral for the Obama Administration during an election year and said the US economy was “moving in the right direction”.

Over to Europe and Mario Monti the Italian PM has asked for all his European counterparts for their full support in implementing austerity measures to stabilise the Euro. “Europe needs to put into action common and coordinated growth policies on financial stability”. His comments came ahead of the Franco-German summit today in which Sarkozy and Merkel will attempt to strike out a unified position in the eurozone.

One will look to this summit to provide impetus on Euro trading in the early part of this week.

Sterling currently down slightly on last week at 1.2084 and the euro against the Dollar is trading at 1.2771.

A busy end to the week in the US, with all eyes on important December US Retail Sales number.

Will we see a continuing uptrend on this latest US number… early signs that it’s a similar story to UK in the retailers posting slightly disappointing numbers.

A fresh wave of negative sentiment swept the wise money markets caused by doubts over euro banks’ capital raising plans and Hungary’s solvency.

This led to investors selling shares in the continent’s major lenders. Italy’s biggest bank, UniCredit saw its share price fall by over 17% after it announced a heavily discounted rights issue, which valued stock at less than a third of it current price.

Over in Hungary, the yield on 10 year bonds soared to over 10% after the government failed to find enough buyers for the 45bn forints (£116 million) of sovereign bonds it was trying to sell. This combination of weakness in the Eurozone led to the single currency dropping to 15 month lows against Sterling.

This weakness in Europe was countered by positive data from both the UK and US.

The UK’s biggest sector, services ended last year on a high while America’s efforts to improve their jobs market showed signs of progress.

The US private sector added 325,000 new jobs in December and the non-farm payrolls are due out today with a rise of 150,000 jobs expected.

Overall, it has been a simple week for the markets with the euro continuing to be weak while the US Dollar remains the strongest of all as investors put their money into the global reserve currency.

Festive cheer in the money market seem to be running out already as we move towards the end of the first trading week of 2012. Disappointing Italian and Spanish PMI data more than offset a decent German figure and the eurozone is looking more and more likely to be heading into another recession.

The euro was under pressure for most of yesterday as risk was dumped and the US Dollar strengthened.

The theme is continuing this morning as the single currency continues to be sold; European banks continue to make headlines for the wrong reasons as they park newly created ECB cash back at the central bank rather than lending or investing it in the real economy.

Retail gloom continues to hang over the UK with many of the retailers reporting crucial Christmas figures this week.

Next shares were pummelled after they reported disappointing sales over the festive period and set a gloomy tone as we wait for results from rivals M&S.

John Lewis were a ray of light in the gloom, posting impressive sales growth compared to last year, but most if not all retailers are suggesting that economic conditions remain a real concern and are expecting a challenging year.

The Pound has opened the year in much the same way as it finished the last, namely taking a back seat to the Euro and Dollar with economic fundamentals remain less of a driver than politics.

The wise money is hoping for a clear sign of the economic picture on Friday from the Non-farm payrolls, either showing the recovery continuing or a worsening picture and the prospect of further QE this year.

More likely is that the number shows the US economy to the chugging along slowly, leaving both the Fed and the markets disappointed.