[ForexNews]

Since last week EUR/USD has been trading a bit against the interest rate odds, weakening while there has been no real shift in rate differentials (in contrast to the past two months or so when the interest rate relationship has been very tight). One obvious possibility is that this is simply a low liquidity period when we should expect a larger-than-normal element of randomness in currency moves.

A second possible reason is the announcement last Thursday that the Treasury had made its commitment to fund the GSEs unlimited over the next three years. The explanation was that the move was needed "for preserving the continued strength and stability of the mortgage market". From an FX perspective, the prospect of additional Treasury funding of losses at GSEs may be no more appetizing than the Greek fiscal problems that have preoccupied markets over the past few weeks. It may also suggest that the Treasury is concerned that markets will become more focused on GSEs and housing once the Fed buying program is over.

A third possibility is that the comments by Chinese premier Wen over the weekend that China is neither facing an imminent inflation issue nor willing to yield to pressure to allow the yuan to appreciate lead investors to think that we may return to the USD selling by central banks that seemed so prevalent in Q2 and Q3 of 2009