Given market hopes that euro zone officials will reach a deal in time to help Greece avoid a debt default, the euro exchange rate has recovered from lows of close to $1.43 seen versus the dollar yesterday. At the same time however, sentiment remains fragile given the hurdles that still have to be crossed before next week’s EU Summit. Lifetime lows versus the CHF were also seen yesterday as investors moved into the safe haven currency, with the EUR also slipping back versus the GBP. Sentiment was not helped by the announcement from Standard and Poor’s that it was cutting its Greek sovereign debt rating by three notches, pushing it even further into junk territory status.

Although the release of a batch of better than expected Chinese data overnight has helped to some extent, risk appetite is also being dampened by underlying concerns about the outlook for the global economy and in particular concerns about the subdued pace of recovery in the US. In this regard, markets will be paying close attention to this afternoon’s release of retail sales for May, as well as the latest producer prices and business inventory reports. Retail sales are expected to have fallen in May for the first time in almost a year, weighed down by a sharp drop in car sales and some easing in gasoline prices, though this moderation in energy costs could support households in future months.

Sterling, meanwhile, will be keeping a close eye on this morning’s release of the UK CPI report for last month. This is expected to show an annual inflation rate of 4.5%, well above the BoE’s 2.0% target. However, this is unlikely to change the market view that UK rates to send money abroad will remain on hold for some time yet.