The trading week kicked off to a quiet start with the Japanese market away on holiday and a dearth of fresh economic news for traders to digest. Moving the markets today was a better-than-forecast Q2 earnings report from Bank of America, which, combined with the earnings reports from last week, instills renewed confidence in the financial sector. Although earnings plunged by 41% to $0.72 per share, it exceeded consensus estimates for $0.53 per share, prompting currency traders to push the euro/yen pair to a new record high at 169.89.

The economic calendar from the US consists of the Richmond Fed survey, weekly jobless claims, June existing home sales, building permits, durable goods orders, July University of Michigan consumer confidence, and June home sales. The data will highlight the current hurdles impeding the economy with further declines expected in both the housing market and consumer sentiment. Fears of rapid deterioration in the financial sector have subsided somewhat following recent better-than-expected earnings reports from banks. Nonetheless, the Fed has revealed increased concern over the outlook of the economy, tempering market sentiment for an FOMC rate hike in the coming months.

Sterling Awaits Data

The sterling will be heavily impacted by this week's UK economic reports given the implications for Bank of England policy decisions over the coming months. BoE Board member David Blanchflower offered a dour assessment on the economy in an interview with the UK's Guardian news. Blanchflower sees the UK economy heading into a recession, potentially lasting over a year, and warned that the BoE would need to "cut interest rates rapidly" in order to stave off a severe downturn. He also added that the latest employment figures from the UK marked the "tip of the iceberg".

In the coming session, the key highlight will be the release of the Bank of England's July meeting minutes. Consensus estimates look for an 8-1 vote to leave rates unchanged, with Blanchflower being the likely dissenter. Given the inflationary conditions in the UK - with CPI nearly double the Bank's 2% target, the minutes may reveal greater discussion over the prospects for a rate hike, which would benefit the pound. However, if the minutes provide greater emphasis on the risks to growth, market sentiment may shift toward pricing in a higher likelihood for a BoE rate cut - prompting traders to sell the sterling.