While risk aversion remains very much to the fore, forex markets are somewhat steadier. Indeed, the euro, is off its weekend record low against the Swiss franc which, along with the yen, is the safe haven currency of choice. The euro also gained slightly against the dollar in yesterday’s trade. Even so, the single currency continues to struggle for support, with markets remaining very jittery about the eurozone debt situation as they await Thursday’s eurozone leaders’ summit. These concerns were reflected yesterday in a sharp rise in Italian and Spanish bond yields. This will put added focus on today’s Spanish T-bill auction. Meanwhile, the German ZEW index is expected to fall further into negative territory which could add to pressures on the euro.

The dollar has also recovered somewhat from its own record low against the Swiss franc. However, here too gains have been limited. Nervousness here surrounds the political negotiations to increase the US debt ceiling, ahead of the 2nd August deadline and about the economic and monetary policy outlook. In regard to the latter, even if today’s US housing starts figures are stronger than anticipated, the data may not provide the dollar with much support as they are likely to underline the still depressed nature of the market.

Early morning negative euro sentiment saw sterling start yesterday at a one and a half month high to the single currency at close to £0.87. However, with little reason to buy sterling, as markets await Wednesday’s MPC minutes for direction, the UK currency failed to hold these gains as the euro edged off its lows over the course of the day. Sterling, though, tracked the euro slightly higher against the dollar.