As the dollar gains support against other currencies, especially against the Euro and Sterling, sentiment surrounding the US markets is starting to show some signs of improvement. On Friday the USD raced to a five-month high versus the Euro and, at $1.9150, touched a 22 month high against Sterling. Last week’s two main pieces of good news in the US (a solid 2.2 per cent annual growth in business productivity and rising pending home sales) prompted a decisive shift in the tone and language of the markets regarding the USD.

Fed officials have made it clear on their recent statements that inflation is a significant concern for them. A stronger dollar may also help to keep a lid on US inflation. The big question now is whether the US patient can start to show some consistent signs of a major recovery?

The key indicator out this week in the UK, which will probably be a major market mover, is the CPI figures for July, due out on Tuesday. However, despite the recent decline in commodity prices, we are not expecting a pleasant reading. Data out today includes the UK PPI number for July, due out at 09.30BST and June’s reading for trade balance at 09.30BST.

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