Once again, the EUR continues to defy expectations and claws back ground against both GBP and USD. The debt problems in the zone are not going away, but it would seem that the markets are reacting to ‘data of the moment’, rather than paying much attention to the elephant in the room. There is fair opinion that debt contagion will bite chunks out of the EUR further down the line, but for now the currency is more than holding its own.

Pound Sterling – UK Markets

The pound has tracked euro gains against the dollar so far today. Further gains could see it test its recent 3.5-month high of just above 1.66. There is a different story versus the euro however, and we see a slide from sterling following encouraging German data. A slight increase in mortgage approvals for July has done little to lift GBP and we are comfortably nestled in the middle of the current trading range. It’s more of the same unfortunately; up, down, but with no real breakout.

US Dollar – US Markets

The greenback has lost some ground against both the pound and the euro, but continues to stay rangebound ahead of a speech on Friday by Federal Reserve Chairman Ben Bernanke on Friday. He is expected to detail further measures necessary to revive the struggling economy and you can be sure that his comments will have an effect.

Euro – European Markets

German manufacturing data this morning has given the single currency a lift, with marginal gains made across the board. However, the zone’s dominant service sector was stagnant this month whilst manufacturing activity has shrunk for the first time since 2009. This points to flat GDP growth, as we would expect, but also indicates that perhaps the slowdown is taking root in core members and not just the periphery. The euro may be Teflon-coated for now, but surely is living on borrowed time…

Other Currencies – Highlights

The Asia-backed currencies, including the AUD and the NZD, have seen appreciation following a private report that showed China’s manufacturing shrinking at a slower pace. This has somewhat eased concerns regarding global economy momentum.