The Eurozone looks a marginally weaker place today although a rebound for U.S. stocks late in the day has been followed through in Asian and European stock markets. This creates the impression that the recent bout of risk aversion may have washed through the system. The focus today is onto stocks and off currencies, which fits perfectly in explaining why the dollar index is lower to begin the day. An OECD report predicts better things for the global economy and once again casts the spotlight on emerging market economies where failure to cool off might yet justify stringent monetary policy measures.

Euro - The euro retains its composure just above four-year lows reached last week. Today the single currency rests at $1.2310. Several tidbits of news don't help its plight today. French consumers spent less last month on manufactured products while German consumer confidence dipped. Both are potentially attributable to a slowing economy or at least a cautious consumer in light of the homegrown debt crisis. The Italian government took a large step towards trimming its budget deficit, which currently stands at 5.3% of GDP. Today is froze civil servants pay and announced a major crackdown on tax evasion in an effort to reduce its deficit to less than 3% within two years. These three items together whiff of a potential contraction at the very least, which is investors' biggest fear for Europe.

German Chancellor Merkel during a four-day tour of the Gulf states told Arab leaders that Germany would do its part in stabilizing the euro and promoting the competitiveness of smaller EU members. Her comments are an attempt to promote trade between the two areas and are intended to help show that the EU is in control of the debt crisis. The Gulf states had planned to create a common member currency and will be watching the situation unravel in Europe.

U.S. dollar - The dollar index eased to 86.67 as the pressure on the greenback slipped somewhat in light of a return to the black for equity markets. The world feels a slightly calmer place today. Hindering the demand for dollars today is a report from Paris-based OECD with its semi-annual forecast in which it raised global growth prospects. The report contrasts the growth rates between debt-laden developed nations and emerging economies including China.

The 30-member OECD region is expected to grow by 2.7% this year but would grow by 4.6% if China was included. Between 2000-2006 the average growth rate was 3.6%. The OECD report recognized the sovereign debt blowout to be the primary threat to economic recovery but also notes that there remains the potential for overheating in those core emerging markets. If growth is left unchecked those areas may become boom-bust economies requiring stringent monetary policy measures to check vigorous growth. While India is currently predicted to grow at 8.3% this year and 8.5% next year, the OECD predicts that China will cool from 11% to 9.7% this year and Brazil will slow to 5% from 6.5% in 2010. Each of these three economies recently embarked on a firmer monetary stance to help cool growth.

British pound - The pound remains stable today and edged higher against the dollar to $1.4400, while it also stole ground against the euro to 85.45 pence. Mortgage lending picked up marginally on the month but stands 15% higher than a year ago.

Aussie dollar - The Aussie dollar regained 1.5 cents against the dollar overnight reaching 83.36 U.S. cents and currently stands at 82.97 cents after an Asian stock market recovery. In its report the OECD predicts that notwithstanding the rise in short term interest rates to 4.5%, the domestic economy will grow faster in 2011 at 3.6% than in 2010 where growth is expected to come in at 3.2%. The Aussie jumped to ¥74.80 against the Japanese currency.

Canadian dollar - Recovering commodity prices helped lift the Canadian dollar today. The dollar reached a two-day high at 94.04 U.S. cents having hit rock-bottom at 92.13 cents recently. The loonie came off its earlier peak and stands at 93.75 cents. Rising crude oil prices and a warmer backdrop thanks to the bigger picture outlook from the OECD report have helped soothe recent stormy seas.

Japanese yen -The Japanese yen remains supported by dollar sales at around ¥90.50 and finds yen sellers at around ¥89.25. The recent resumption of risk aversion not to mention the unsettled regional outlook on account of heightened tensions on the Korean peninsular, appear to have left the dollar-yen pair hung-up around ¥90.00. Looking in the rear-view mirror the yen is not finding as much support as during previous crises when it rose at the expense of the dollar to as high as ¥84.50. It's hard to interpret this exactly since the fundamental outlook for the U.S. economy during the meantime has improved and overtaken the prospects for the Japanese economy.

Andrew Wilkinson Senior Market Analyst