Mr Strauss-Kahn was refused bail and will remain in custody until his next hearing on the 20th May.

In his absence EU financial ministers did manage to approve the £65 Billion bail out of Portugal, the IMF providing around one third of the funds (the other two-thirds are from the 2 bail-out vehicles set up by the EU).

Over in the US President Obama again called for Congress to approve increasing the debt ceiling to avoid what he described as a potential “devastating economic and financial crisis”.

Republicans are aiming for guarantees on deficit reduction before they agree to a hike in the debt ceiling and the inertia is beginning to worry the markets, given the estimated day that the government runs out of money is the 2nd of August.

The Federal Reserve minutes from their last meeting are due today at 6pm, as ever the markets will be looking for comments on the economic recovery (especially on housing and the labour market) and anything regarding the end of QE2 and the Fed’s strategy once the easing has ended.

Currency conflicts at the G20 gathering in Nanjing continue to undermine markets with the obvious divisions between member nations on the way forward causing the very moves that participants are looking to correct.

He adds that becoming a constituent of the IMF’s currency basket would be the clear evolution.

The European delegates remain wary of further Dollar strength with the French President, M. Sarkozy summing up the concern when he argued against the Euro, or any other currency, usurping the Greenback role as the global reserve medium.

He added that recent Euro strength versus the Dollar was unjustified.

Overnight, we saw the stronger Dollar from the last few days give up some of its gains on comments from Federal Reserve member Bullard clarifying his reported remarks from the day before.

He said that there is no consensus on the FOMC about ending QE2 early, and that this is unlikely to take place.

He also said that the Federal Reserve would be able to tighten policy by not necessarily pushing up official rates, but by starting to sell back assets adding that this cycle of tightening would be far more difficult to manage.

The weaker Dollar / stronger Euro scenario was further enhanced by yet more comments from ECB Board members, Bini-Smaghi and Stark who both cemented in the probability of a rise in the official Euro interest rate at next week’s regular meeting.

The former talked of rates being returned to normal levels in a “gradual way” whilst Stark pointed out the fact that policy rates at present levels were exceptionally low.

They will certainly be watching the fates of Portugal, Ireland, Greece and Spain (PIGS) with great concern.

The PIGS are now caught in a euro trap. The boom years swelled their labour markets and their public finances.

Now the bust leaves them uncompetitive and with a major debt hangover.

But the usual cheap cure to these ailments, currency devaluation, is not an option inside the euro.

So does this mean the EU’s newcomers and wannabes have decided to kick their own euro-membership plans into the long grass?

The Czech Republic and Poland, countries with notable Eurosceptic politicians, do not especially want to join the eurozone at all.

Both did very well outside the euro during the 2009 downturn, thanks in part to the sharp drop in their currencies, which helped them keep a competitive edge, he explains.

Poland did not even experience a recession, an almost unique achievement in Europe, though government spending had a lot to do with this.

But for some East European countries it may already be too late to escape the same euro-trap now afflicting their Mediterranean peers.

Although technically outside the single currency, many have pegged their currencies to the euro.

Estonia, which plans to join the euro in January, saw its economy shrink 17% last year after it slashed government spending and refused to devalue the kroon. Its Baltic neighbour Latvia fell a whopping 25%.

For others, notably Hungary, devaluation was not the easy option that it would have liked.

For years, ordinary Hungarians had taken out their mortgages in foreign currencies, such as the euro, Swiss franc or even the yen.

The Hungarian forint was going to join the euro eventually anyway, so why pay the much higher interest rates demanded in their own currency?

The reason, as so many were to discover, is that their foreign currency mortgage payments became unaffordable when the forint lost a quarter of its value.

That gave the authorities in Budapest a nasty dilemma: keep the forint strong and suffer a deeper collapse in exports, or let the forint fall and watch its banking system sink under a mountain of unrepayable mortgage debts.

In the end, they called in the International Monetary Fund (IMF).

It said it had concerns over the quality of collateral to cover loans.

On Friday, credit rating agency Moody’s cut sharply the Republic’s debt rating.

“The ECB has serious concerns that the draft law is insufficiently legally certain on a number of critical issues for the euro system,” the bank said in a recent paper.

It questioned the powers granted to the Irish Finance Minister Brian Lenihan by the draft law “interfere significantly” with the rights of shareholders and creditors of financial institutions.

“Furthermore, the ECB suggests further clarification that the rights of the central bank and the ECB, as creditors of any relevant institution, will not be affected,” the bank said.

It added that the paper, was a response to a request from Mr Lenihan for its opinion on draft legislation granting him extra powers to ensure the Republic’s financial stability.

It said it “welcomed” the request and understood “the need for an accelerated legislative procedure”, but said it would have “appreciated being consulted at an earlier stage”.

Last week, the International Monetary Fund (IMF) approved a three-year loan of 22.5bn euros for the Republic.

The funds form the first part of the IMF’s contribution to the EU and IMF rescue package.

The effective interest rate that the Irish will pay on the loan is reported at 5.8% according to the official document, but private calculations have put the figure closer to 7.25% and this will lead to an astonishing 20 per cent of Irish tax revenues servicing the debt by 2014 according to calculations.

Which Wise Money calculates will be completely unsustainable.

The main controversy is the news that senior bond holders in the Irish banks will received no haircut on their holdings – no doubt due to contagion fears as investors dump bank bonds in the event of any short back and sides – and the banks are estimated to need an extra €8bn to get core Tier One capital to at least 12 per cent.

And now come up for breath.

More than three quarters of Eurozone government debt is held by Eurozone members, mostly financial institutions so you can see why this package wants to protect senior debt holders, but politically there is huge pressure to make sure that tax payers do not shoulder the whole burden and write downs on bond holdings in the future cannot be ruled out.

Inevitably the Euro continues to fall against the US Dollar- which continues to perform well in the face of heightened uncertainty.

Sterling has also opened the week on the back foot as UK institutions are reckoned to be the most financially exposed to the Irish, particularly RBS through Ulster Bank.

UK House prices have continued to fall for the fifth month in row, but mortgage approvals came in slightly ahead of forecast.

There will need to be a much larger turn around in approvals for it to have any significant impact on house prices in a falling market. This week is a light one for Sterling data which the only figures of note UK PMI on Wednesday and further house price figures on Friday.

The Dollar trades at a two month high against the Euro and is looking at its first monthly gain versus the Yen since April.

In a week which will probably prove to be highly embarrassing for the US after 250,000 classified diplomatic cables are released by media around the world, we have ISM manufacturing, consumer confidence and non farm payrolls to look forward to.

But not as much as those cables. According to reports, the cables will reveal disparaging remarks about Gordon Brown and David Cameron, my bet is that the UK public will probably agree with whatever is said.

Spreads on 10-year Spanish bonds rose to a post-EMU record of 233 basis points over Bunds, pushing the yield to 4.87pc.

Spain’s central bank governor, Miguel Angel Fenrandez Ordonez, said the contagion had spread rapidly to the eurozone periphery and “made itself felt” in the Spanish debt markets. He called on Madrid to accelerate fiscal reforms to persuade the markets the country really means to put its house in order.

German Chancellor Angela Merkel admitted on Tuesday that the eurozone was “facing an exceptionally serious situation”.

She brushed aside criticism that German insistence on bondholder “haircuts” or debt write offs from 2013 was fuelling the crisis.

However Dutch finance minister Jan Kees de Jager sent a further chill through markets, saying “holders of subordinated bonds in Irish banks will have to bleed” under the Irish rescue.

The comment touched a raw nerve, heightening fears that investors may be treated harshly under the bail-out terms for any country needing a rescue.

Bank of Ireland shares crashed 23pc and Allied Irish Bank’s fell 19pc on fears that shareholders will be wiped out. Ominously, there was a sharp sell-off of Spain’s two top banks, with Santander down 4.7pc and BBVA down 3.9pc.

Meanwhile chief ostrich- EU president Herman Van Rompuy denied that Lisbon needs a lifeline, insisting that Portugal’s banks are well capitalised and do not face property losses. “Portugal does not need any help – it is in a very different situation to Ireland,” he said.

However, Portuguese banks have been shut out of the capital markets. The country’s total debt level is one of the world’s highest, at 325pc of GDP, and it has a current account deficit of 10pc – which requires a flow of external funding.

Brian Lenihan, Ireland’s finance minister said the spike in borrowing costs was partly driven by “unintended” German comments proposing bondholders be forced to take losses if sovereign debt is restructured.

The market nerves pushed the spread between Irish 10-year bond yields and German yields to well over 6 percentage points, a new record. The cost of insuring Irish debt against default also hit a fresh high.

Germany has indicated the proposals would not apply to existing debt, but fears over potential losses are high after France said on Wednesday that investors must share in the cost of safeguarding debt.

German Chancellor Angela Merkel argued last week that taxpayers could not keep being told they “have to be on the hook for certain risks, rather than those who make a lot of money taking those risks.”

Although the Irish government is fully funded into the middle of next year, analysts warned politicians’ talk of losses risked creating a self-fulfilling prophecy that Ireland and other debt-laden nations will have to restructure.

Irish yields are now well above the levels Greece faced just before it saved from defaulting through a £100bn loan in the spring, according to Capital Economics.

There were warnings solvency fears were spreading as Portugal and Spain also saw the cost of insuring their debt against default soar, which kept the euro under continued pressure.

Earlier this week we saw a squeeze higher on the US Dollar catalysed by good US retail sales numbers  but more so through the concern over Ireland tripping into dollar strength.

The euro has pushed higher on this realisation trading back up to 1.37 against the USD supported by middle-eastern buying.

The key question is will confidence remain in the euro arena- according to Citigroup Inc and Nomura Plc the answer will be a no.

They say that relief will be short-lived as attention turns to who is next and all fingers are pointing to Portugal.

The Portuguese Finance Minister said that while “there is a risk of contagion”, that does not mean that the country will seek financial aid- so the merry go round could start again.

On top of the bailout plans Ireland will also announce a 4 year fiscal plan to help steady the ship.

Although Dublin insists that there is no threat to Ireland’s 12.5% corporation tax, the mood over the loss of economic sovereignty was summed up by Mary Lou McDonald from Sinn Fein who stated “Officials from the EU and IMF and any other vultures circling around this country should be told to get lost”.

Tough times ahead for Ireland and there is still a possibility that sovereign issues will continue to weigh on the euro for some time to come.

Focusing on the UK, retail sales rose for the first time in three months, by 0.5% providing a much needed boost as we approach the Christmas period.

The Pound has also been lifted on the news of a bailout for Ireland- the UK is exposed to Irish debt and this led to sterling weakness earlier in the week which has now been somewhat lifted.

Uncertainty about Ireland’s debt crisis has helped support the dollar recently as markets remain focused on Ireland’s financial woes.

Currencies are see-sawing as year end book closing has prompted a lot of short dollar positions built up over the past couple of months to unwind, exacerbating losses in the euro.

The Pound could come under pressure should Ireland resist assistance given UK banks’ large exposure to the country.

Sterling edged up against the dollar and euro on Wednesday after an unexpected fall in jobless benefit claims and as the Bank of England showed it had held its three-way split at its latest policy meeting.

Data showed the number of Britons claiming unemployment benefit fell by 3,700 in October, the first fall since July and confounding expectations for a rise of 5,000.

Separately, minutes from the Nov 3-4 BoE Monetary Policy Committee meeting showed one member wanting more stimulus, another voting for a rate hike and the remaining seven keeping policy on hold and ready to act in either direction.

That was likely to reinforce expectations policy would remain on hold well into next year until the outlook for the economy became clearer.

Dominique Strauss-Kahn the IMF’s Managing Director said co-operation between countries had weakened since the financial crisis started in 2008.

There is also the risk of bubbles in financial and property markets. And capital inflows can go into reverse – as they did in the Asian crisis in the 1990s.

So the third element in the currency “war” is the resistance of emerging economies, and some developed ones too.

Brazil and Thailand have used tax measures to slow the inflows. Japan, South Korea and others have intervened in the currency markets, buying foreign currency in an attempt to interrupt the rise of their own.

There is a view that they will just have to live with it. The upward pressure on the currencies of many emerging economies reflects the fact they are more growing strongly than the US.

It is difficult for them to manage, but the underlying reason is that they are doing relatively well.

The currency war is closely linked with another theme that has been troubling many economists for several years, that of global economic imbalances.

In international terms, it is trade that is unbalanced. Actually, the thing that is most often the focus is the “current account balance”, which means trade in goods and services plus some financial items, including remittances that migrant workers send home.

Usually, though, trade is responsible for most of the current account imbalance.

Some countries have large trade surpluses, notably China, Germany, Saudi Arabia and Russia. The biggest deficit country is the United States.

Some countries at the eye of the European storm have hefty deficits too – the PIGS aka Portugal, Ireland, Greece and Spain.

Britain also has a deficit, although as a share of national income, it is not all that large.

The other side of international imbalances is high savings at home with a surplus country such as China, and relatively low savings in a deficit country such as the US.

Household savings have risen in the US, the UK and other deficit countries, because consumers are borrowing less in the wake of the financial crisis.

But international imbalances also reflect how much governments borrow and in many deficit countries that has risen, partly offsetting the increase in private savings.

Why does all this matter? Those countries where saving has risen desperately want to export more. They want to sell more abroad to make up for consumers at home drawing cutting back their consumption.

That is true of the US, Britain and many others. They could do that more easily if consumers in China and the other surplus countries were willing to buy more imported goods.

A rise in China’s currency would not be a cure all, but it would probably help in the short term. Although it would also create greater inflation.