It’s happened! Sterling strengthened across the board yesterday after the UK returned to inflation in July, contrary to market expectations. Moving ahead, with retail sales in the UK anticipated to rebound in July, a positive surprise might put increased pressure on the BoE to normalize monetary policy.

Those looking for some market shaking news from the US could soon have their way. Across the Atlantic, all eyes will be on a set of notable releases, including the latest CPI report and minutes from the July FOMC meeting, scheduled later in the day, which are likely to provide further cues on the US Fed’s future course of action with regards to interest rate movement. With little data on tap in Europe today, focus is on German Parliamentary vote on Greece’s third bailout package, I think we all know where this is going!

Pound Sterling – UK Markets

Sterling refuses to stay down! Investor sentiment for Sterling against its key peers, the US Dollar and the Euro, had weakened last week following the release of somewhat disappointing UK labour market data. The Pound staged an impressive comeback and recovered sharply against its major currency counterparts yesterday after Britain’s consumer price inflation unexpectedly rose to 0.1% in July. Markets had anticipated a flat reading for the second straight month in July, so even a moderate rise in consumer prices was enough to lead the Pound higher. Data indicated that falling food and energy costs failed to offset pickup in prices caused by higher clothing costs and air fares, thus reigniting debate over when the Bank of England policymakers would raise its benchmark interest rate. I must say, it’s a brave man who would rule this prospect out entirely!

If this week’s UK retail sales report delivers a positive surprise and adds to expectations of the BoE raising its benchmark interest rate at the turn of the year, the Pound would be able to sustain its gains. Meanwhile, in the absence of any significant domestic macroeconomic releases today, traders will eye global developments for direction. The question of course, is which global develpopments!

US Dollar – US Markets

The forthcoming data soon to be released from the US cant come soon enough for the Dollar! The US Dollar is trading on a weaker footing against the Euro and the Pound this morning, with investors looking forward to the release of the minutes of the last FOMC meeting later in the day for cues about the pace and the timing of future rate increases in the US. The US Fed statement which was released after the last Fed meeting had provided very little guidance in regards to the Fed’s future course of action. Today’s minutes could provide an insight as to whether the Fed policy members are in majority agreement that a rate rise is necessary and if so when the first rate increase would occur. Also, the latest consumer price inflation figures from the US, scheduled in a few hours, would attract significant market attention. Should the key US reports today keep hopes of a near term interest rate rise alive, the US Dollar could experience an upsurge against the major currencies.

Yesterday, data showed that US housing starts rose to a near eight-year high for July, reassuring investors that the US housing market is well on the path to recovery. A well earned sigh of relief is in order!

Euro – European Markets

A relatively upbeat mood prevails over Eurozone of recent, despite it’s well documented woes. The European calendar since the commencement of trading session early this week has remained light, and has had little key economic data to trigger volatility in the Euro against the major currencies. This morning, the shared currency has recovered part of its earlier losses against the US Dollar, ahead of the release of the minutes of Federal Open Market Committee's July meeting scheduled later today. In European economic news, data released earlier in the day, revealed that seasonally adjusted Euro zone’s current account surplus widened more than market expectations for June. With the current account data having little influence on trading in the Euro this morning, investors will now keep a tab on Euro zone’s construction output due in a short while for further direction.

On the Greek front, the German Parliament is expected to approve the bailout package for the cash strapped nation today. Any delay in proceedings would make it difficult for Greece to make a debt repayment to the European Central Bank tomorrow.

Other Currencies – Highlights

Not a great time for Abenomics I’m afraid! Gains in the Japanese Yen against the US Dollar were capped after Japan’s trade data released earlier today indicated that trade deficit unexpectedly widened to its largest level in five months for July after export growth slowed amid intensifying concerns surrounding the outlook for the Japanese economy. Economic growth in the world’s third largest economy slowed in the April to June period, after a strong expansion in the first quarter of this year on the back of tepid household spending and sluggish exports. Additionally, Japan’s biggest trading partner, China recently made a surprise move to devalue the yuan, making its own products more price competitive.

In separate data, Japan’s all industry activity index rose albeit at a slower than anticipated pace for June, but the economic indicator failed to lift the Japanese Yen against the greenback. Moving ahead, investors will await the US CPI and cues from the FOMC minutes for trading trends in the currency pair.