Oil prices rise but the US Dollar falls as Libyan concerns intensify

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Investors are becoming increasingly nervous that bad things are about to happen in Libya and that a side-effect will be a limit on the flow of oil. Yesterday, US crude oil futures reached a 30-month high at $96 a barrel while Brent crude was up to nearly $107. Unusually, the currency market's haven't reacted as expected.

There has been no move to the safety of the US Dollar; in fact, the US Dollar has fallen against Sterling and the Euro. The two main currency winners were the Swedish Krona and the Norwegian Krona, with Norway's oil reserves tipping the scale in favour of the Krona's.

The Euro got a boost yesterday during late morning trading after ECB council member and Luxembourg Central Bank Governor Yves Mersch said that "the inflation projections of only a couple of months ago would have to be readdressed in the light of recent developments in the price of oil, food and commodities"

Investors put two and two together and came up with five, jumping to the conclusion that Eurozone interest rates will be raise in August and bought the Euro. The buying was enough to take the currency half a cent higher against the US Dollar and a cent up against Sterling. In the last 24 hours, Sterling is down by quarter of a Yen and ten South African cents but is stronger against the Australian and New Zealand dollars. 

Yesterday's UK public sector net borrowing figure was a highlight on the data calendar, revealing a net repayment of £5.23 billion during January, exceeding the markets expectations. Canadian retail sales fell by -0.2% in December while an index of US house prices fell by -2.4% in 2010. A strong showing of US consumer confidence delivered a five-point rise to 70.4 and the Richmond Fed's manufacturing index was seven points higher at 25 but neither did anything for the US Dollar.

Today the Bank of England will release the minutes from the February MPC meeting, followed later in the session by a series of speeches from BoE, ECB and US Federal Reserve policy makers. In terms of data, the January figures on US existing home sales are expected to post a modest decline. Geopolitical developments in the Middle East & North Africa is also likely affect risk.