From what I am reading and seeing I think country risks have been sacrificed in the search for yields.
Even a hint that the Bank of Japan may be getting near to ending its quantitative easing, and raising rates, is going to lead to large moves in the yen. People have been so positioned for it to go down.
It's still likely that interest rates will continue to go up in the U.S., so that favors the dollar over the medium term.
The measured pace of rate increases is still on track. People are jumping on this as another reason to buy the dollar.
The Fed has been explicit that any more moves will be driven by data. I would be surprised if the data wasn't healthy, and the dollar could firm on the back of stronger numbers.
The market will therefore be eyeing today's ISM report and Friday's University of Michigan survey with this in mind.
If you assume that the markets are effectively pricing in 2.75 percent rates by the end of the third quarter and have been doing that really since the end of last year, there is nothing that they are hearing from ECB members is really altering that perception.
Sterling has been remarkably robust in an environment where it could easily have lost ground, that encourages me that there has been some real underlying support and demand for the currency.
Bush will continue to keep the pressure up but China isn't going to bow to political pressure. People are paying attention to this, but it's not moving the currency markets and China's unlikely to move again anytime soon.
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