The euro fell towards $1.43 over the weekend dragged down by ongoing concerns about the fate of Greece. It has since recovered some ground on a bout of short covering but downside risks remain. As key meeting dates approach (the Summit of EU heads takes place on 24th June) markets will be watching for any updates on the terms of a second bailout package for Greece. In this regard, the parties involved seem to be as far apart as ever with Germany remaining of the view that it wants to see private sector involvement. The ECB, however, remains firmly against this view.

The euro has also lost some momentum on the back of the high interest rate story. Although Trichet indicated last week that a second rate hike will come in July, there was little indication of any tightening beyond that, with the central bank leaving its 2012 inflation forecast unchanged. At the same time, however, downside versus the dollar and sterling could be protected by the fact that the US and the UK economies also face significant challenges. US data in particular have disappointed of late and markets will be paying close attention to this week’s round of data for updates in terms of the pace of economic activity in Q2. Numbers to watch include today’s release of retail sales for May as well as the latest producer prices and business inventory reports. Forecasts suggest that the data are unlikely to reverse the current wave of negative sentiment.

Luckily for the world’s largest economy, the focus remains on Europe’s lumbering response to its debt crisis rather to the equally moribund approach being adopted by America’s politicians. Vice-President Joe Biden and Treasury Secretary Geithner have been holding meetings with Republican leaders over recent days, in an attempt to get them to accept the idea that tax increases need to form at least some part of the solution to reducing the enormous fiscal deficit. More meetings are due to be held this week, as both sides show some more urgency with the August 2nd drop-dead date for reaching the debt limit fast approaching.

Sterling too faces a number of challenges this week including tomorrow’s release of the UK CPI report for May and Wednesday’s unemployment report for the same month. Currently in a relatively tight range versus the euro and dollar, international sentiment is also likely to dominate moves in the GBP over the coming days.