Risk off took center stage as increased geopolitical turmoil triggered USD buying across the board. The Jasmine revolution in Northern Africa and wider unrest in the Middle East has now attracted further relevance in the financial markets as the effects have migrated to key oil producers and exporters. Headlines report that major oil companies are now evacuating employees from hot zones which has amplified concern. As if anyone needed a refresher, Libya is the world's 17th largest oil producer and while protests in Iran and Saudi Arabia have been mild so far there is evidence that tensions are mounting in these major oil producers. Oil prices have surged higher with Brent climbing to $108.57 while WTI is rapidly closing the spread trading up to $94.49. Gold and silver have also benefited from safe haven flows. Spot gold, while still underperforming silver, traded up to $1410.75. Adding to the negative sentiment was a fresh natural disaster in the Antipodes as Christchurch, New Zealand was struck by a 6.5 magnitude earthquake. The NZDUSD dropped rapidly to 0.7476 from 0.7645, catching speculative long players off-guard who had been anticipating a better payout by Fonterra. There is growing concern that the economic disruption from this quake is worse than last year's natural disasters, and traders are now pricing in a roughly 25% chance that the RBNZ will cut rates 25bp on March 10th. In an unexpected move, Moody's downgraded Japan's government and large bank rating outlook to negative from stable. The credit rating company stated that Japan's inability to adopt comprehensive tax reform could trigger future rating action, citing heightened concern that economic and fiscal policies may not prove strong enough to achieve the government's deficit reduction target and contain the inexorable rise in debt. Interestingly, Moody's did say that a funding crisis in JGBs was unlikely in the short- to mid- term and don't anticipate any significant shift in investors' purchasing behavior. USDJPY price action was messy as the market reacted to the news, and rumors of a mis-hit which pushed the pair up to 83.56 didn't help. After the knee jerk reaction the USDJPY quickly regained the downside ground and the trend remains lower as safe haven flows keep the JPY supported. Asian regional indices we broadly lower with Shanghai's Composite index down 2.62% and Hang Seng falling -2.11% . Stock markets have remained eerily resilient to the events in the Middle East and we suspect that today we will begin reconciling the divergence. Events in the Middle East have become the core driver of FX pricing and news that a pair of Iranian naval ships are crossing the Suez into the Mediterranean, along with planned protests in Saudi Arabia carry massive risk. In the UK, BoE MPC member Weale suggested that the country could be heading toward stagflation and recommended that small hikes now could prevent playing catch up later. Both Weale and Sentance have voted for a 25bp hike in January and there is speculation that other members have now joined them (potentially Bean given recent hawkish comments). Clarity should be imminent with tomorrow's release of the minutes of the Feb. 10 policy meeting. There is also the 2nd release of UK GDP on Friday, and we are expecting a strong upward revision to last quarter's devastating -0.5% q/q read. This should provide traders with evidence that the recovery is ongoing and that the BoE's main focus needs to be tackling the UK's elevated inflation level. This moment of realization should give the sterling plenty of support.