The dollar edged up higher against the majors at the start of the week amid declines in the global equity bourses as risk aversion returns on renewed worries over the economic recovery. The greenback pushed the euro beneath the 1.39-level to 1.3877 and the pound marginally below the 1.61-figure. Oil came under pressure as well, losing ground to its lowest level in five weeks to just above $64 a barrel.

The June non-manufacturing PMI was released earlier today, improving by more than expected, rising to 47.0 and beating estimates for a rise to 46.0 from 44.0 in May. The business activity component jumped closer to the key 50-level, edging up to 49.8 from 42.4 in the previous month while the employment index crept up to 43.4 versus 39.0. Meanwhile, the prices paid index rose past the 50-level -- the line in the sand to distinguish between expansion and contraction, to 53.7 in June, compared with 46.9.

The US economic calendar this week is light, consisting of weekly jobless claims, wholesale sales, wholesale inventory, trade deficit and the July University of Michigan consumer confidence report. Weekly jobless claims are estimated to ease slightly to 610k from 614k in the previous week. The trade deficit for June is seen expanding to $30.0 billion versus $29.16.

With the G8 Summit taking place in the latter half of the week in Italy, markets will pay close attention to any discussion over the dollar's standing as the global reserve currency of choice. Russia and France both raised the prospects for a discussion at the G8 meeting regarding currencies. France's economics minister Lagarde said a discussion should take place over the medium term of the balance of exchange rates and the role of currencies that have changed both as a result of the crisis and the role played by emerging market countries. Russian President Medvedev chimed in, saying the dollar system or the system based on the dollar and euro has shown that they are flawed, adding that there should be more reserve currencies and it is necessary to think about the creation of regional reserve currencies. Meanwhile, China's Vice Foreign Minister He Yafei said the US dollar is still the most important and major reserve currency of the day, and we believe that the situation will continue for many years to come. Further, he reinforced the greenback's role, saying while there has been talk of establishing a super sovereign currency, it remains a discussion among academics and that it is not a position of the Chinese government.

Pound Pummeled

The British pound regained some footing against the dollar by early afternoon trading, recovering from its 4-week lows hit earlier in the session at 1.6099. The Bank of England deliberates monetary policy with the results slated for release on Thursday at 7:00 AM. The BoE is largely expected to leave interest rates unchanged at 0.5%, but speculation that the Bank may boost its asset purchase plan to prop up the economy. As a result, the sterling will likely remain under pressure in the coming weeks.