In an apparent softening of the ECB's reluctance to provide Europe's bailout fund with additional powers, Austrian central bank President and ECB official Ewald Nowotny, said there are arguments in favor of granting Europe's rescue fund a banking license. If granted, this would allow the European Stability Mechanism to access ECB funding, in-turn boosting its €500 billion firepower. While he may have flagged the idea, Nowotny said he is "not aware of specific discussions within the ECB at this point." Markets are clearly struggling with a crisis of confidence and the premise of a larger war-chest has provided some short-term solace as countries such as Spain and Italy teeter on the edge.

The Euro enjoyed a reprieve after a solid week of selling on optimism Europe's bailout fund would be replenished. Still it's clear the Euro return from multi-year lows is superficial at best, with the region still shrouded in concerns over the near-term fate of the periphery, with Greece and Spain still very much in the firing line. Spanish borrowing costs eased overnight with 10-year retreating from euro-era highs with similar moves across Italian debt markets despite being hit with another ratings downgrade. Ratings agency Egan-Jones cut Italy's sovereign rating and placed the country on negative watch, citing the countries "ability to support its banks is questionable given the country's and banks' weak condition."

The surprise of the session was a significant fall in UK GDP which slid 0.7 percent in the second quarter to represent a yearly contraction of 0.8 percent. Economist had anticipated a much more subdued fall of 0.2 percent or -0.3 percent on year. Sterling collapsed in the ensuing period and continued to be outpaced by its major counterparts over the course of trade.

Across the Atlantic, the health of the U.S housing sector remain a stumbling block with U.S New home sales falling 8.4 percent in June, against expectations of a moderate rise. Corporate America also remained a key influence with batch mixed earnings results keeping markets on the back foot. The S&P500 closed flat on the day.

The Australian dollar outpaced its major counterparts with Euro strength providing a positive backdrop. Given the recent string of less than inspiring data points and general anxiety for the United States, it's clear stimulus expectations have also provided a positive backdrop for the local unit. Domestic conditions have also provided moderate support for the Aussie dollar with yesterdays inflation gauge showing a slightly higher than expected rate of underlying inflation, rising 2 percent on year. At the time of writing the local unit is buying 103 US cents.

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