Although the single currency fell below Friday's low of 1.2890 in early Australian trading on Monday as traders sold euro in reaction to Sunday's news that IMF and EU had withdrawn 20 billion euro financing deal to Hungary and said the Hungarian government needed to do more to shrink its budget deficit before further bailout money will be loaned to the debt-ridden country which has Europe's highest public debt at 80% of GDP and euro later hit an intra-day low of 1.2871 in European morning after Moody's Investor Service downgraded Ireland's sovereign bond rating from Aa1 to Aa2, the single currency then rebounded strongly to 1.2992 on cross buying in euro (eur/jpy rose from 111.43 to 113.07 while eur/chf gained from 1.3508 to 1.3672). Later, despite retreating briefly to 1.2932 in NY morning, euro managed to bounce to 1.2984 after U.S. home-builder sentiment fell, U.S. NAHB housing market index in July dropped to its 15-month low at 14 (versus the estimate of 16), which sparked off fears that the U.S. economic recovery is slowing.

In earlier news, Moody's said the downgrade of Ireland's bond ratings is due to the gradual but significant loss of financial strength in the Irish government.

Irish bonds have under-performed rest of peripheral EU sovereign debt after Moody's downgrade as Irish/Spanish 10-year bond spreads widened from 14 bps to 127 bps, its widest since May 10 while equivalent Irish/Italian spread expanded to 153 bps versus 143 bps at Friday's close.

Versus the Japanese yen, the greenback traded steadily in Asian morning after plunging to an 8-month low of 86.27 in NY on Friday. Although it showed muted reaction to intra-day weakness in Asian equities (stocks in Asia-pacific were down except Shanghai Composite) following Friday's 2.5% selloff in the Dow on fears over possible BoJ's intervention and recovered to an intra-day high of 87.23 in Europe, the pair then retreated from there after release of worse-than-expected U.S. NAHB housing market index and fell to 86.64 in NY morning before moving sideways.

Although the British pound traded narrowly in Asia and fell to 1.5260 in European morning after Moody's downgraded Ireland's debt rating, the pound staged a recovery in tandem with euro and hit an intra-day high of 1.5351 in European morning. However, selling interest emerged there knocked cable down n sterling fell sharply to an intra-day low of 1.5203 in NY morning on cross selling versus euro as the eur/gbp cross-pair rallied to a seven-week high of 0.8532.

Economic data to be released on Tuesday include: Australia RBA minutes, Japan Leading indicators, Germany PPI, Swiss Trade Balance, U.K. PSNCR, PS net borrowing, CBI Trend Total Orders, U.S. Building permit, Housing starts, Canada BOC rate decision.