The euro fell yesterday following news that Moody’s had downgraded Portuguese debt to junk status, warning that the country may need a second round of rescue funds. There had already been a somewhat weaker tone to the euro. Factors such as weak PMI and retail sales data for the region and speculation that China may raise rates at the weekend, which was dampening risk sentiment, were weighing on the single currency. The sell-off following the news of the Portuguese downgrade, however, proved short lived and the euro regained much of its ground overnight as markets took the view that the Moody’s action doesn’t really change the picture.

Markets are now beginning to look towards the end week key events. Both the BoE and ECB are to make their rate announcements tomorrow while US non-farm payrolls numbers are due on Friday. Ahead of these, today’s US services ISM may set dollar direction. Meanwhile, in the eurozone, Spanish industrial production and German industrial orders are the main features.

Better news on the UK economy provided sterling with early support yesterday. A surprise pick up in the services PMI saw short covering in the UK currency which jumped higher against both the dollar and the euro. Sterling, though, has struggled to hold these gains and has drifted back against both currencies with today’s news confined to house price data from Halifax.