Investors are bracing themselves for what is expected to be another tense week in the currency and stock markets. A late rally on Wall Street on Friday should help provide some support for European markets when they open today. However, more crucially for European markets will be the outcome of the Bundesbank's council meeting tomorrow and whether it decides to allow German interest rates to rise.
Such a move would help strengthen the deutschmark and possibly weaken the value of sterling, giving the pound scope to recover some ground against the British currency and ease inflationary pressure in the Irish economy.
Last week, the Bundesbank council buoyed the deutschmark by implying that it was about to return to setting its repo rate on a weekly basis for the moment. Up to 18 months ago, it had fixed this rate on Tuesdays.
Indications that this policy is set to return have been taken as an indication that the German central bank could now opt to push its interest rates higher, in a bid to defend the deutschmark.
The market now believes that the bank will set its repo conditions weekly, a move which could allow it to switch from a fixed to a variable interest rate at any time, and push German interest rates gradually higher.
Analysts will also be watching the Franco-German summit on Thursday, when the German Chancellor, Mr Kohl, is due to meet the French Prime Minister, Mr Jospin, to discuss European Monetary Union.
Mr Kohl is coming under increasing political and market pressure to convince doubters that the euro will be a strong currency. To do this, analysts believe his room for negotiation or concession to France is strictly limited and they will be closely monitoring the outcome.
Meanwhile, the stock markets still remain on edge. After falling by as much as 175 points in early trading on Friday, the Dow Jones Industrial Average managed to later stage a recovery to end a turbulent week.
Throughout August, investors have seen up to 100 point daily changes in New York, which has triggered huge falls in the major international markets. But analysts are still viewing these fluctuations as a correction, suggesting that the market is trying to establish a base level during a period of low volumes and while currency and bond markets are also uneasy.
They insist that the US economy is still showing good economic growth, and low inflation suggesting that these underlying factors should continue to support a strong equity market.
Mr Mark Cliffe, chief international economist at HSBC Markets, has dismissed any imminent threat to the continuing solid performance of the US economy, although he does highlight three major threats.
In his latest global overview, he states that it is fashionable to suggest that the US will continue to enjoy a "Goldilocks economy" - where there is nothing on the horizon to disturb its stable economic growth. He warns that even Goldilocks had to contend with three bears.
The first bear is the US equity market, in which, he warns, there is a real risk that the recent correction in US stock markets will turn into something more serious.
Secondly, he warns of the dangers of a situation the rising dollar has created for the Asian currencies. The third bear, he suggests, is the European currency. Higher rates in Germany would raise fears of a general turn in the European interest rate cycle, according to Mr Cliffe.
