Europe’s Battle Far From Over

Even as the ECB has jumped into the fray to tackle the region’s debt crisis, there remain lingering doubts that its plans may turn out to be futile. Spain’s Prime Minister, Mariano Rajoy demonstrated once again that he was in no rush to push Spain towards a bailout while the stalemate between Greece and its creditors continues. Meanwhile, the German Constitutional Court reaffirmed this morning that its ruling on the ESM will not be delayed. Despite the prevalent gloom in the global economy, high yield currencies climbed on hopes of fresh round of easing in the US.

Pound Sterling – UK Markets

The Pound continues to trade above the 1.60 mark against the US Dollar, as economic data from the UK continued to cheer market participants. Data just in revealed that the visible trade deficit in the UK narrowed for July. Moreover, worries surrounding the housing sector faded, as RICS in its monthly survey revealed a marginal improvement in sentiment among surveyors on the back of hopes that recent government measures would boost home sales in the near future. Earlier today, Moody's cast aspersions over the UK’s banking system, as the agency maintained a negative outlook on the banking sector. Moody’s expects the profitability of UK banks to stay under pressure, and that the sector’s heavy exposure to the nation’s commercial real estate market and to peripheral Eurozone countries continues to pose a significant threat to the financial system. With Sterling trading flat against the Euro in today’s session, market participants have turned their attention to tomorrow’s employment data for a clearer picture about the recovery in the British economy.

US Dollar – US Markets

The US Dollar retreated against its peers in today’s session, as traders shunned the greenback in the build-up to Fed’s monetary policy decision on Thursday. In yesterday’s session, the US Dollar traded in a tight range against the Euro, as developments in the Eurozone prompted traders to switch their attention from the Fed’s monetary policy meeting this week. The Spanish Prime Minister, Mariano Rajoy, reiterated that Spain was in no hurry to seek fresh aid, while the lack of agreement in the Greek government over fresh austerity measures have weakened optimism following last week’s announcement by the ECB. Among major economic releases, data revealed that consumer credit in the US unexpectedly declined for July, marking the first drop in almost a year, broadly due to a second straight monthly decline in credit-card debt. With no major events scheduled today, markets have set their sight on today’s trade data for gauging the impact of the global slowdown on the US economy.

Euro – European Markets

The Euro rallied against the US Dollar, in the backdrop of growing optimism that the Fed would embrace fresh easing measures in order to spur growth in the economy. However, traders proceeded with caution on fears that optimism following last week’s ECB decision could be doused by events this week. The Spanish Prime Minister, Mariano Rajoy, stated that he would not accept an economic rescue that dictates the nation’s fiscal policies, while Greece indicated that it was facing trouble convincing its lenders to accept an austerity plan in exchange for aid. The German Constitutional Court earlier today announced that it would not postpone its ruling on the legality of the Eurozone's bailout fund. On the economic front, data revealed that wholesale price index in Germany climbed for August. In the absence of any major releases for today, the Euro is expected to be driven by the outcome of major events during the course of the week from both sides of the Atlantic.

Other Currencies – Highlights

The Aussie Dollar advanced against the US Dollar and the Japanese Yen, amid growing optimism that the US Federal Reserve would announce a fresh dose of QE in its monetary policy meeting this week. However, the Australian Dollar underperformed other high yield currencies, as data from National Australia Bank revealed that its business sentiment indicator slipped into the negative territory for August on account of weakening outlook for commodity prices. In the absence of any major releases due for the week, the Aussie Dollar is expected to be closely influenced by events in the Eurozone and the US. The German court’s verdict on the validity of ESM on Wednesday and Fed’s monetary policy decision on Thursday hold significance in setting the near term trend for the Aussie Dollar