Banks are set to dominate the week ahead, with the Bank of England and the European Central Bank (ECB) making their monthly decisions on interest rates - which could up sterling and the euro - and a number of banks releasing interim figures.

The euro started the day standing at 1.27 to the dollar and 0.68 to the pound. Sterling meanwhile was at £1.86 to the dollar. The dollar fell after suggestions that recent interest rate rises have successfully held back US inflation.

In the UK, with inflation currently at 2.5 per cent, 0.5 per cent above target, and better than expected economic results, the Bank of England's monetary policy committee (MPC) may be tempted to raise rates when it meets on Thursday August 3rd.

It is also a year since the MPC's last decision to change rates and two years since the previous rate change.

The European Central Bank (ECB) is also to decide European interest rates on August 3rd, with suggestions that a rate rise of 0.25 per cent to three per cent could be on the cards to hold back inflation.

It is thought the ECB could follow the example set by the Bank of Japan and the US Federal Reserve, which have both upped rates in the last month, although the Bank of England could hold off an interest rate rise until later in the year.

The state of the banking sector will also be under the spotlight this week with HSBC, AIB Group (UK), Allied Irish Bank, Deutsche Bank, HBOS, Lloyds TSB, Barclays and the Royal Bank of Scotland all releasing interim results.

HSBC is expected to report record results for the first half of the year, with pre-tax profits around the £5.9 billion mark, reports City AM.

The banks are generally expected to post good results - fuelled by good consumer lending outside the UK and investment banking fees, reports Bloomberg.