Dollar continues a mild recovery

The softer dollar was evident in EUR/USD regaining ground up in $1.11 territory after having started last week sub $1.10, while GBP/USD managed to end the week above $1.56 after having started it just below $1.55.

Dollar

The US Dollar is slowly recovering after last week’s devaluation of the Yuan. It is believed that the position the Yuan has taking against the Dollar could hurt the US economy and mean that the Federal Reserve will not increase interest rates. This could mean the White House would have to engage in further stimulus if the economy was negatively affected.

This morning the Chinese central bank set the Yuan, slightly higher which is an attempt to soothe global market fears that Beijing is intent on a bigger devaluation.

"The market is gradually calming down. We still think the yuan has been overvalued and an adjustment in the yuan was necessary," said Bart Wakabayashi, head of forex at State Street Global Markets.

This week we will have the release of the FOMC minute, which will be very important in relation to the Federal Reserve interest rate decision.

The Dollar trades at €0.90042.

Euro

At 10 AM London time, Eurozone trade balance figures will be released. The bloc registered a trade surplus worth €18.8 billion ($US20.86 billion, £13.33 billion) in May.

News reports concerning the Greek political landscape is suggesting growing opposition to the government being led by Alexis Tsipras. For instance the Pasok party joined opposition which includes a part of the Syriza party because of the government accepting the third bailout under which has tough austerity and reform measures attached.

Yesterday, Ms Merkel had her first interview after the Greek bailout was passed by the Greek parliament last week. She suggested that there is definite hope that the bailout will be successful.

There is no doubt that the 631-member Parliament will approve the package, speculation is rife here about whether Ms. Merkel will face more opposition this week.

In Germany’s consensus-based system, opposition from more than 20 percent of her own lawmakers would be seen as a blow to Ms. Merkel. Mr. Schäuble, whose word carries weight with the skeptics, made clear on Sunday in an interview with the mass circulation daily newspaper Bild Zeitung that he felt the risk with Greece was worth taking.

The Euro trades at £0.70970.

Pound Sterling

On the sterling front, July CPI data is an important release in the context of the BoE’s cautious approach to increasing rates in light of weak inflation. With inflation forecast to remain very subdued (0%), this might not be helpful to sterling’s attempts to push higher against the dollar.

Currently the Pound trades at $1.56475

Australian Dollar

The Australian Dollar stabilised on Monday due to the People’s Bank of China holding the Yuan at current rates (6.3969 yuan to the US dollar). However the future impact of lasts weeks fall in the Yuan may limit future gains for the Australian Dollar. In late trade on Monday the Australian dollar was buying US73.74¢.