The U.S. dollar regained its strength against the majors after falling to two-month lows last week. Concerns over European Bank stress tests and the possibility of weakness in some euro zone banks dragged the euro lower against the dollar.

Dollar movement is more focused on euro profit taking rather than USD data. Markets largely ignored disappointing news that U.S. housing starts hit their lowest level in eight months in June; further evidence the economy has lost momentum, and is possible on its way to a double-dip recession.  

The euro was subjected to profit taking after a swift 5% rise against the USD in the past two weeks. Some investors are also consolidating positions ahead of Friday's stress tests being conducted in the European Union. Though the tests are largely expected to show that all the major European banks have sufficient capital, investors are still in a wait and see position.

Sterling slipped after a sharp rise in the UK's public sector cash requirement, though analysts stressed the move looked short-term.  The Office for National Statistics noted that the public sector posted a net cash requirement of 20.905 billion pounds, up from 20.213 billion in June last year and well above economists' forecasts for a fall to 15 billion pounds.Additionally, Bank of England data showed lending to UK firms contracted for a third consecutive month in May and major banks approved fewer mortgages in June. The pound responded with a knee-jerk reaction to the data.

The Canadian dollar remains rangebound despite an interest rate hike for the second time in two months, which was largely in line with market expectations.  With oil prices under pressure and worries about the U.S. economic recovery in the forefront of the market, the loonie's gains will be limited.

The Japanese yen has remained firm and near recent seven-month lows against the USD.  Market participants will be interested to see if the dollar falls to a 15-year low by breaching the November 2009 trough of 84.81.

The Australian and New Zealand dollars rose aided by remarks from Australia's central bank that an election would not deter an interest rate rise if needed. Minutes of the RBA's July policy meeting suggested the bank could raise rates if underlying inflation data out next week does not show the slowdown expected. That led investors to price for a higher chance of a rate rise this year, if not in August. Kiwi investors await a 25 basis-point hike on July 29 when the Bank of New Zealand meets.

Indicative rates:EUR/USD

1.3028

USD/JPY

86.70

GBP/USD

1.5309

USD/CAD

1.0489

USD/MXN

12.8335

USD/CHF

1.0453

AUD/USD

0.8814

NZD/USD

0.7149

 10-Year Treasury Note Yield:  2.948%Dow Jones Industrial Average:  10,099.86 -54.57

This market summary is prepared by Union Bank's Global FX Department for the general information of its customers. It is based on the most accurate information currently available, but should not be considered investment advice or a guarantee of future exchange rates or trends.