Greece and eurozone debt issues in general remain a dominant market factor. The euro made good gains last week as fears of a Greek default eased. It extended these gains over the weekend, to a one month high to the dollar, after EU finance ministers approved the next instalment of Greece’s bailout funds. The euro, though, is off its highs this morning with S&P warning that a debt rollover plan for Greece may put the country into selective default.The euro has also been supported by expectations that the ECB will increase its refi rate by 0.25% to 1.50% at Thursday’s meeting. The subsequent press conference will be closely watched for any steer on where rates are headed thereafter and any indications that rates will then remain on hold for some time would weigh on the euro.

The dollar, meanwhile, is being driven by the tone of economic data and Friday’s unexpected rise in the manufacturing ISM index provided the US currency with some brief support. The main test for the dollar exchange rate this week will be Friday’s June US non-farm payrolls report. Payrolls disappointed in May, adding to the general concern about the outlook for the US economy. Another unexpectedly weak number could weigh heavily on the dollar. Trading, though, will be subdued today with the US closed for the Independence Day holiday.

The Bank of England also meets this week but with little risk of any policy change as the MPC continues to adopt a wait and see approach. Indeed, with the MPC appearing, if anything, to be moving further away from any near term policy tightening, sterling has been under pressure and is vulnerable to any weak economic data.