NEW YORK ( TheStreet) -- The dollar (USD) was mostly firmer vs. the majors as the risk-off trading environment carried over from last week, albeit in thin holiday trading.

The yen and Swiss franc were largely firmer, while emerging-market currencies were mixed. The biggest gainers on the day vs. USD were the zloty (PLN), leu (RON), ringgit (MYR), won (KRW) and Taiwan dollar (TWD), while the biggest losers vs. USD were the krona (SEK), real (BRL), pound (GBP), Chilean peso (CLP) and Canadian dollar (CAD).

The European Central Bank, Bank of England and Reserve Bank of Australia meetings this week offer some event risk, though no policy changes are expected (see below).

Turkey's CPI was lower than expected and should allow the central bank to remain on hold for now. Peru's central bank intervened aggressively to prevent neuvo sol (PEN) strength.

Bank Indonesia kept rates steady at 6.5%, as expected. South African government workers may strike over a pay dispute.

Hungary's year-to-date budget gap exceeded the full-year target after only six months and should help keep downward pressure on the forint (HUF).

Brazil analysts boosted year-end policy rate expectations to 12.125% from 12% last week and 11.75% last month. Expectations are likely to rise further in the coming weeks due to strong data.

U.S. equity markets were closed Monday. European markets were lower, with Euro Stoxx 50 down 0.6%. Nikkei futures point to a down Japan open, and the strong yen should hurt Japan exporters.

The U.S. bond market was also closed. European bond markets were mostly higher, as 10-year yields in the U.K., France and Germany were down 3 basis points, 6 basis points and 4 basis points, respectively. Ten-year yields fell 3 basis points in Greece, 6 basis points in Portugal, 1 basis point in Italy. They rose 9 basis points in Spain.

The Bank of England and the European Central Bank are both holding their regular policy meetings on Thursday.

Although no change in interest rates is expected from both central banks this month, they're facing different policy dilemmas at this stage of the cycle.

At the Bank of England, interest rate hikes were discussed at the June Monetary Policy Committee meeting. Andrew Sentence voted for an immediate monetary policy tightening last month, and policy remarks since the meeting suggest that his bias to raise interest rates could well be maintained this month.

Although acknowledging a tighter fiscal stance, Sentence notes that the recent budget unveiled a fiscal tightening broadly in line with expectations and with most of the tightening coming in the outer years.

He also believes that the U.K. economy has turned the corner and focusing on nominal demand, the current 6% growth rate is above the historic trend in place before the crisis.

Considering the U.K.'s inflation-targeting monetary policy framework and that CPI has been reported above the 2% inflation target for six straight months, Sentence's case cannot be ignored.

It would appear that at this point, his view is a minority view on the MPC as seven of the other MPC members on board at the time of the June meeting favored to keep policy on hold and to assess the extent to which the budget would affect the near- to medium-term growth profile, hence inflation prospects.

Since then, question marks over the global recovery have intensified. Martin Weale (formerly a director of the National Institute for Economic and Social Research) has just been appointed as a new external MPC member (to replace Kate Barker).

The latter voted for an unchanged monetary policy outcome at his last meeting on the shadow MPC, and he will probably be in the wait-and-see camp for now. Note that the shadow MPC voted 7-2 in favor of a no-change monetary policy outcome this month (vs. 5-4 last month), capturing growing concern over the international scene.

The time for rate rises may not have come yet in the U.K., but in the wake of recent domestic economic news (in particular on the inflation front), comments from Bank of England members and latest MPC meeting minutes, we note that 1) the MPC will start raising interest rates before it contemplates withdrawing any of the quantitative easing (200 billion pounds so far) in place, 2) the first rate rise will be seen earlier than initially anticipated and possibly before year-end and 3) the case for a rate rise is stronger in the U.K. than in the eurozone, and the Bank of England will most likely start raising rates before the ECB.

At the European Central Bank, rate hike discussions will remain off the agenda for the foreseeable future. In fact, some would even argue that there is still a case for delivering further quantitative easing (the ECB is reluctantly buying sovereign bonds at an average pace of a 1.5 billion euros a day), in the eurozone economy.

We believe that the ECB remains reluctant to do so and is unlikely to play the quantitative easing card at this point, but ECB chief Trichet will most likely confirm that the monetary authorities will stick to the approach of making sure that ample liquidity will stay available should the need arise.

A need for assistance from monetary policy could also emerge later this month as Spain rolls over 25 billion euros of its debt. The bottom line is that the ECB will not release further monetary stimulus unless market conditions deteriorate further.

From an economic perspective, there is no sense of urgency when it comes to normalizing the monetary policy environment. Inflation is very well contained (see CPI yearly rate running at just 1.6% year over year in June), and monthly economic indicators have pointed at a still very sluggish recovery and a geographically uneven economic climate.

The various austerity measures undertaken in the periphery countries will only exacerbate those geographical discrepancies. All this is in line with our view that the ECB is nowhere near normalizing interest rates and a rate rise seems unlikely this year.

If anything, it is quantitative easing talks that could resurface at some point, even if that would not be the ECB's favored scenario.

The respective European Central Bank/Bank of England monetary policy outlooks is consistent with our bearish near- to medium-term outlook for the euro/pound currency pair (EUR/GBP).

The cross currency pair has recovered from last week's low, but we are of the view that this provides good selling opportunities. Medium-term investors should look to enter fresh short positions in the 0.8280/0.83 region, with near-term support at 0.807 (June low) and the psychologically important 0.8000 support likely to be tested. Our updated quarterly currency forecast shows EUR/GBP at a low 0.75 by the end of the second quarter of 2011.

CFTC data shows that for the week ended June 29, speculative bets on a stronger dollar were overall lower.

Net short euro positions rose to -73,670 from -70,974, Swiss franc net shorts increased to -12,848 from -10,265 previously, while pound net shorts fell to -34,771 from -46,346 previously. Australian dollar (AUD) net long positions rose to 12,854 from 11,806 previously, (CAD) net longs fell to 15,894 from 26,353 previously and New Zealand dollar (NZD) net longs rose to 2,486 from 822 contracts previously.

Mexican peso (MXN) net longs increased to 42,496 from 35,639 previously. Yen net longs rose sharply to 27,427 from 3,630 contracts previously, the biggest net long since early March. With the yen firmer since the start of last week, net yen longs should increase further in the next weekly report.

Upcoming Economic Releases

Asia: Philippines CPI; Australia trade, RBA meeting; Japan leading index

Europe, Middle East and Africa: Swiss CPI

Americas: U.S. nonmanufacturing PMI; Canada building permits. No U.S. speakers of note.
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