Kathleen Brooks, research director at Forex.com, gives  her views on the news and events affecting currency markets.

Two main events have livened things up this morning. Firstly there was Portugal’s downgrade. Credit rating agency Moody’s followed its peers’ by lowering Portugal’ long-term sovereign debt rating to Baa1 from A3. Along with its rating downgrade it added that it would keep Portugal on negative review so further downgrades are possible. The justification for the downgrade was the political uncertainty and Moody’s analysts’ belief that a new government would need to seek financial support from the European Union/International Monetary Fund bailout fund as a 'matter of urgency'. We know that 15 April and 15 June are big redemption days for Portugal when it will need to tap the markets to cover its debts. If Lisbon can jump the April hurdle, June will be waiting in the wings and may push the Iberian nation to the European Financial Stability Facility as it finds it impossible to fund itself in the market.

The euro is trading with a slight downward bias since the announcement and is below 1.4200 versus the dollar. This is still primarily a credit event though, and Portuguese short-term government debt has seen its yields move higher to 8.85 per cent. The risk is that Portugal gets downgraded further and loses investment grade status, causing a fire sale in Portuguese debt and exacerbating the country’s problems even more.

While the euro has been fairly immune from peripheral debt problems, its downward bias today is mostly a factor of EUR/GBP weakness after the UK’s  March PMI services sector survey jumped to a 12-month high this morning. The sector, which had been fairly sluggish in recent months, picked up to 57.1 from 52.6 in February. This is the first survey since the start of the year that wasn’t affected by adverse weather conditions so part of the strength could be down to a rebound in activity after snow depressed the sector in December and January. It is also comes at an encouraging time for the UK as it could feed into stronger first quarter GDP data. The trickle of weak data from the UK including retail sale and consumer confidence have weighed on growth expectations for the start of the year. But since the services sector is 70 per cent of the UK economy, a pick-up in this area is important for growth prospects going forward.

Short-term US Treasury yields have been unable to rise above the 0.8 per cent level. Yields were under pressure last night after Federal Reserve chairman Ben Bernanke sounded fairly dovish at a speech in Atlanta. Although he said he was watching inflation closely, he said that as long as inflation expectations remained well-anchored then the increase in inflation caused by commodity prices will be temporary. We have heard this before with the Bank of England who has been banging this drum for over a year now, so it will be interesting to see if the tolerance of the Federal Reserve towards 'temporary' inflation faTwo main events have livened things up this morning. Firstly there was Portugal’s downgrade. Credit rating agency Moody’s followed its peers’ by lowering Portugal’ long-term sovereign debt rating to Baa1 from A3.  Along with its rating downgrade it added that it would keep Portugal on negative review so further downgrades are possible. The justification for the downgrade was the political uncertainty and Moody’s analysts’ belief that a new government would need to seek financial support from the European Union/International Monetary Fund bailout fund as a 'matter of urgency'. We know that 15 April and 15 June are big redemption days for Portugal when it will need to tap the markets to cover its debts. If Lisbon can jump the April hurdle, June will be waiting in the wings and may push the Iberian nation to the European Financial Stability Facility as it finds it impossible to fund itself in the market.

The euro is trading with a slight downward bias since the announcement and is below 1.4200 versus the dollar. This is still primarily a credit event though, and Portuguese short-term government debt has seen its yields move higher to 8.85 per cent. The risk is that Portugal gets downgraded further and loses investment grade status, causing a fire sale in Portuguese debt and exacerbating the country’s problems even more.

While the euro has been fairly immune from peripheral debt problems, its downward bias today is mostly a factor of EUR/GBP weakness after the UK’s  March PMI services sector survey jumped to a 12-month high this morning. The sector, which had been fairly sluggish in recent months, picked up to 57.1 from 52.6 in February. This is the first survey since the start of the year that wasn’t affected by adverse weather conditions so part of the strength could be down to a rebound in activity after snow depressed the sector in December and January. It is also comes at an encouraging time for the UK as it could feed into stronger first quarter GDP data. The trickle of weak data from the UK including retail sale and consumer confidence have weighed on growth expectations for the start of the year. But since the services sector is 70 per cent of the UK economy, a pick-up in this area is important for growth prospects going forward.

Short-term US Treasury yields have been unable to rise above the 0.8 per cent level. Yields were under pressure last night after Federal Reserve chairman Ben Bernanke sounded fairly dovish at a speech in Atlanta. Although he said he was watching inflation closely, he said that as long as inflation expectations remained well-anchored then the increase in inflation caused by commodity prices will be temporary. We have heard this before with the Bank of England who has been banging this drum for over a year now, so it will be interesting to see if the tolerance of the Federal Reserve towards 'temporary' inflation factors is as strong as it is at the Bank of England.

This has weighed on the dollar especially versus the pound. USD/JPY has also come off on the back of Bernanke’s comments but remains fairly well supported above 84.00. We expect any strength in the yen to be short term as investors take profit after a sharp move lower in the Japanese currency. Any pull back in USD/JPY is likely to be used to reinstate long positions and thus we see USD/JPY rising towards the 85-90 level over the coming months.

The Aussie dollar is also under pressure today after the Reserve Bank of Australia (RBA) kept rates on hold at 4.75 per cent last night. The RBA governor said that the current inflation rate is consistent with the “medium-term objective” of monetary policy, and inflation pressures are being kept in check by the strong Aussie dollar, which hit a fresh high this week. The RBA is on data-watch so the next few weeks when employment and inflation data are released will be key to determining the future direction of policy by the RBA.

Ahead today the ISM non-manufacturing survey will dominate the headlines along with the Fed minutes for the March meeting. UK house price data released overnight could temper sentiment towards the pound as expectations are for a 2.8 per cent fall in the three months to March.ctors is as strong as it is at the Bank of England.

This has weighed on the dollar especially versus the pound. USD/JPY has also come off on the back of Bernanke’s comments but remains fairly well supported above 84.00. We expect any strength in the yen to be short term as investors take profit after a sharp move lower in the Japanese currency. Any pull back in USD/JPY is likely to be used to reinstate long positions and thus we see USD/JPY rising towards the 85-90 level over the coming months.

The Aussie dollar is also under pressure today after the Reserve Bank of Australia (RBA) kept rates on hold at 4.75 per cent last night. The RBA governor said that the current inflation rate is consistent with the “medium-term objective” of monetary policy, and inflation pressures are being kept in check by the strong Aussie dollar, which hit a fresh high this week. The RBA is on data-watch so the next few weeks when employment and inflation data are released will be key to determining the future direction of policy by the RBA.

Ahead today the ISM non-manufacturing survey will dominate the headlines along with the Fed minutes for the March meeting. UK house price data released overnight could temper sentiment towards the pound as expectations are for a 2.8 per cent fall in the three months to March.