By David Song, Currency Analyst • What would you say is the major global theme in currency markets at this time? What do you feel is driving major currency trader sentiment? With the headline-driven market, the major fundamental theme driving currency prices is the global threat of the sovereign debt crisis. World policy makers continue to strike a cautious tone amid the ongoing turmoil in the euro-area, and the risk for contagion will continue drag on investor confidence as European officials struggle to meet on common ground. As the governments operating under the single currency become increasingly reliant on monetary support, we are likely to see the European Central Bank carry out its easing cycle throughout 2012, and the Governing Council may have little choice but to push the benchmark interest rate below 1.00% as the region continues to face a risk for a prolonged recession. • The Federal Reserve looks increasingly unlikely to inject QE3 into the economy any time soon. Do you agree with this, and if so, could this be considered bullish for the USD? In light of the more robust recovery in the U.S., the Fed certainly has limited scope to expand its balance sheet further. As we expect the FOMC to bring its easing cycle to an end in 2012, the shift in the policy outlook instills a bullish forecast for the U.S dollar, and we should see the committee continue to soften its dovish tone as stronger growth paired with sticky prices raises the risk for inflation. Indeed, market participants see the Fed starting to normalize monetary policy over the next 12-months amid the shift in the policy outlook, and the rise in interest rate expectations should strengthen the dollar further as the central bank prepares to wind down its balance sheet while dismissing the zero-interest rate policy (ZIRP).