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    European Session – Euro rebounds to test 1.09

    Due to the lack of Eurozone and US economic data releases today, most major currency pairs consolidated during the European session. The euro was an exception and bounced higher against the dollar following a choppy Asian session, to reach a high of 1.0916.

    Sentiment for the euro has improved since Greece is much less of a concern for the markets now that the country’s bridge financing is in place, IMF and ECB loans were paid on Monday and the immediate risk of a Grexit has disappeared. However, although the news offers some support to the euro, it is not enough for a sustained rise and so its gains, particularly against the dollar, will be limited going forward due to the diverging monetary policies of the ECB and the Fed. Just yesterday, St. Louis Fed President Bullard hinted on rate hikes later this year, which bolstered dollar strength.

    Sterling was soft today, weakening against most of its major counterparts and even against the euro. The immediate risk for the pound will be Wednesday’s Bank of England minutes, with particular focus on the MPC members’ voting pattern and tone. UK data today on Public Sector Net Borrowing in June was higher-than-expected at 9.4 billion pounds (for the headline number) and did little to impact the currency. Cable traded down to 1.5528. The euro broke above 0.7000 against the pound to reach 0.7016.

    The dollar lost some of its post-Bullard strength and fell back against the yen to 124.09 from a six-week high of 124.46 hit earlier today. Expectations of rising US interest rates have buoyed the dollar lately. The Fed’s Bullard said on Monday that there is a greater than 50% chance of a rate rise in September. The likely increase to rates has shifted demand for gold which tumbled yesterday to five-year lows below 1,100 but has recovered slightly above that level today.

    In other commodities, crude oil is also under pressure by the strengthening dollar and concerns about a supply glut. After a sharp decline to 50.06 in the European session today, prices recovered to 51.38 when US markets opened.

    Wednesday’s Australian inflation data now comes into focus followed by RBA Governor Stevens’ speech. The Australian dollar last traded at 0.7432 after rebounding from a low of 0.7340.

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