International policy responses and co-operation will be increasingly important next week ahead of the G20 meeting on Thursday. There will be strong efforts to promote a unified front, but there will certainly be underlying stresses and these tensions could spill over into public debate. In this environment, there is the potential for risk appetite to remain slightly weaker which would also tend to limit Euro support, especially if credit tensions fail to ease. Although a rally attempt back to near 1.34 is now due, the overall Euro correction is liable to extend towards 1.3150 against the dollar next week.

The degrees of risk appetite remained an important feature and confidence was generally weaker during the day. This was most obvious in the fact that 1-month US Treasury bill yields fell below zero for the first time since December while credit spreads were also wider. Significantly, the Euro was unable to gain any significant support from Wall Street gains

The Euro was also undermined by the loss of support at the 1.34 area against the dollar in European trading on Friday. The Euro was also unsettled by additional speculation that the ECB will join other central banks and pursue a more open quantitative monetary policy while there will be strong expectations of another interest rate cut next week.

The dollar is still not in a good position to secure strong gains given the focus on underlying reserve management and the promotion of an alternative reserve currency.