The dollar extended overnight losses in the New York session, shedding nearly 1.3% versus the British pound and sliding by almost 1% against the Australian dollar. Improved risk-appetite was the key driver in the markets at the start of the week, with the sharp rally in the European and US equity bourses. London's FTSE 100 rallied by 2.65%, the Dow Jones index closed higher by 2% and the S&P 500 advanced by 2.2%. Crude oil surged by 3.24% to trade at its highest level since May 14th, trading to $81.77-per barrel.

The catalyst to the initial gains was strong earnings reports from HSBC and BNP Paribas as well as soft manufacturing data from China. The weaker manufacturing PMI in July for China tempers market expectations for further policy tightening from the government to tap the brakes on an overheating economy. Also propping markets higher was a stronger than expected US July manufacturing ISM report, which beat calls for a decline to 54.0, instead printing at 55.5 from 56.2 from June.

Economic reports will be the key driver in the currency markets this week, with the data culminating in the closely watched labor report on Friday. The Tuesday session will see June personal income, personal spending, the June PCE index, factory orders and pending home sales. The June personal income and personal spending are seen lower, drifting to 0.2% and 0.1%, respectively. The pending home sales report in June is estimated to sharply reverse the record plunge from May, which printed at -30.0%, instead increasing by 3.7%.

Central bank decisions will weigh on the markets in the week ahead. The Reserve Bank of Australia, the Bank of England and the European Central Bank are scheduled to announce the results of their policy deliberations. Although none of the central banks are set to change interest rates, the subsequent policy statements will be closely analyzed to gauge the timing and scope of any changes over the coming months. The RBA statement will be particularly important in light of last week's sharp decline in CPI, which tempers the need for the RBA to further tighten policy.