Dollar floats on economic caution

The single currency took full advantage of a break in trading for the dollar on Monday, creeping to its highest price in three weeks still dizzy from investors’ relief over Greece. The immediate challenge ahead lied in how the ratings agencies will deal with debt rollovers. Elsewhere fears that the Chinese authorities face the task of further containing escalating inflation are prompting concerns that raising interest rates will only serve to further undermine growth. Following an extended U.S. holiday weekend, investors the world over return to a marginally more risk averse environment this morning leading to a firmer dollar

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U.S. Dollar – The shortened trading week may feel as long as a normal week given slower trading conditions as investors aim to stay out of trouble ahead of key events later in the week. Thursday brings monetary policy meetings from the ECB and Bank of England while investors have to wait until Friday for the really juicy data report from the world’s largest economy. Non-farm payrolls may have increased by 100,000 during June according to early estimates. The dollar index reached its lowest point in three weeks on Monday as America celebrated Independence Day although the unit has rebounded on Tuesday by 0.3% to 74.52.

Euro – ECB President Trichet may feel more inclined to back plans to roll over Greek debt on the understanding that by doing so he wouldn’t be creating a situation likely to be deemed by any of the sovereign ratings agencies as a default. Still, the agencies could choose to frame a short-lived default as simply temporary in nature allowing events to flow smoothly after Greek lawmakers busted a gut to endorse austerity measures. The euro came off Monday’s peak of $1.4578 and its highest since June 9, following a Eurozone-wide dip in retail sales activity during May. The report showed a deeper consumer-retrenchment than was expected with sales sliding by 1.1% between months leaving the level 1.9% lower than a year ago. German service sector activity also moderated in June according to a PMI report out Tuesday, leaning heavily on sentiment across the region. The PMI services index for the 17-nation bloc fell to 53.7 from 54.2 while the PMI composite reading dipped to 53.3 from 53.6. The euro pared earlier gains to trade at $1.4469.

British pound – The pound was dogged earlier in the session by the decline of the single European currency only to find its own independent strength following a PMI services report showing unexpected strength. The reading of 53.9 inched up despite expectations of decline and buoyed hopes that perhaps all of the other evidence portraying a weaker British economy might be wrong. The pound rallied to $1.6137 at best on Tuesday and eased as U.S. equity index futures soured to trade recently at $1.6109.

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