Dollar strength to extend through week

• US GDP, FOMC and payrolls all due through the week

• Eurozone CPI due Thursday, further disinflation possible

• UK GDP points to 0.8% as a provisional reading

• Market reaction to Ukraine and Gaza remains light

It is the US economy that will be the driver of hopes and fears this week with a truck load of economic data and corporate earnings figures to be released. Throw in a Fed meeting and Friday's payrolls announcement and we have the makings of an interesting week for the greenback.

Signs of a pick-up in US economic strength have been increasing in the past month, and our expectations are that this will continue through this week. We will have to wait until Friday for the marquee payrolls and the increasingly important wage growth announcements which for both we are expecting a continuation of their recent improvements.

As with last month, this payrolls announcement is made before some other indicators - such as the ISM surveys - that we rely on to give us an idea of the likely scale of job creation. That being said anecdotal evidence and reports such as last week's initial jobless claims readout have shown a continual pull through of job creation in the past month and we are pencilling in another rise of over 200k jobs for the month of July and wage growth of around 0.2% on the month.

This week's Fed meeting is unlikely to rock the boat dramatically, we would think, given the lack of updated economic projections or a post decision press conference from Fed Chair Janet Yellen. We can hope for some more encouraging language on the US economy from FOMC members and another tapering of asset purchases, once again by $10bn, to keep USD bulls interested.

Sterling arrested some of its recent weakness on Friday following the initial publication of Q2 GDP. Finally, the UK economy is back above its previous peak; GDP is now higher than it was in Q1 2008; before we slipped into the credit crunch and the ensuing recession.

Q2’s increase of 0.8% is a decent number and it backs up survey data from all sectors of the UK economy that the recovery is becoming increasing engendered, sustainable and starting to flourish. There is certainly nothing out there at the moment that suggests to us that we should see a major fall-off in the rate of expansion anytime soon, the UK may have simply found its sweet spot.

Once again it was services that drove the economy onwards, rising by 1% in the quarter. Construction slipped back in Q2, falling by 0.5% following a strong Q1 helped by home building and repair efforts to flooded properties in the westcountry. Industrial production rose 0.4%. It is obvious from these figures that efforts to rebalance the economy are not working particularly well at the moment.

Likewise additional efforts around wage growth need to be made to make sure that the recovery is being felt everywhere. Saying the economy grew by 0.8% in a quarter is little more than mathematics to most people; a calculation told, barely understood and often not experienced by everyone. The recession prompted a renewal of the phrase “Keep Calm and Carry On” and all in the UK will be hoping that this expansion does just that.

For the Eurozone, the main release this week will be Thursday’s inflation print and further deterioration will only cause the euro to trade in one direction. Flash CPI is expected at 0.5% - matching last month’s cyclical low - but a print of 0.4% is not out of the realm of possibility given the price cuts that summer sales will have offered and the continuing falls in consumer and business confidence.

Geopolitical risks have remained through the weekend although the impact of recent fighting in Gaza and Eastern Ukraine is having little effect on markets this morning. We can easily see escalations in both of these conflicts moving forward and it will be a resumption of diplomatic measures that will see the volatility relax.

Have a great day.