Currencies
The euro continued to solidify its gains against the dollar. However, the reason for the increased euro value really has nothing to do with the euro - rather it is a dollar event. The dollar is being hit hard by investor flight to safe havens. Until recently, the dollar was the place to go in such situations. But now, with the United States one of the chief protagonists in the Iraqi situation, investors are looking elsewhere.

With the holidays fast approaching in many parts of the world, markets are becoming less liquid as players move to the sidelines. While this can lead to quiet trading much of the time, it also creates conditions of severe volatility when large orders or significant news hits the market.

Japan's economic problems were highlighted Friday by a public row between two government ministers who publicly disagree whether it might be necessary to intervene to weaken the yen. Recent gains in the yen, caused more by dollar weakness than positive sentiment toward Japan, have made Japanese exports more expensive. Shiokawa said in a newspaper article on Friday that the yen was overvalued, though he made clear that intervention to weaken it was not imminent. Shiokawa said one dollar should fetch about 150 yen, not about 120 as now, adding, "We may have to take action." But Finance and Economics Minister Heizo Takenaka said on TV on Friday that "a weak yen-target is not necessary" and he defended existing measures as adequate.

Despite overwhelming negative dollar sentiment, the dollar's losses have been limited. Earlier in the week, the Bush Administration tried to allay market fears about dollar policy. But analysts said uncertainties remain. Until U.S. Treasury Secretary candidate John Snow is confirmed and his views made known, financial markets will remain on edge when it comes to dollar policy. The war jitters remain, however, although fears were eased by U.S. Secretary of State Colin Powell's statement Thursday that there is "no calendar deadline" for action in Iraq.

Gold and oil still troublesome
Growing worries about a war with Iraq have triggered jumps in oil and gold prices. The threat of military action, together with the continuing strike-driven shutdown of Venezuela, drove oil prices to a three-month high. But oil prices fell back from their highs after Venezuela's Supreme Court ordered the restart of operations at the state oil firm.

Gold has assumed its traditional role as a safe haven in uncertain times, with its price hitting levels not seen in almost six years. Gold prices have climbed 23 percent in 2002 and are at their highest level in more than 5 1/2 years spurred on by geopolitical tensions from the Middle East to Kashmir, a slump in global equity markets, and weakness in the dollar. Rallying oil prices and fears of a war with Iraq opened the gates for a flood of fund money into the safe-haven asset. Gold prices spiked upwards to $355 in intra-day trading on Thursday.

Oil prices strengthened on Thursday after chief U.N. weapons inspector Hans Blix said there was "little new information" in Iraq's weapons declaration. The U.S. stepped up the pressure by declaring that Iraq had completely failed to meet U.N. requirements. Traders said those statements make a war with Iraq virtually inevitable, though nothing is likely to happen until the end of January at the earliest. Oil output in Venezuela is now down to less than 300,000 barrels a day from 3.1million barrels last month.

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