EUR up on IFO, Greek Austerity Agreement

Euro rebounds on IFO survey & agreement on Greece 5 year austerity plan, sterling in focus as Mervyn King speaks, US GDP final revision .

The euro's rebound passed an early test this morning as Germany's June IFO business sentiment survey rose to 114.5 (exp 113.5) from May's 114.2. Current Assessment index rose to 123.3 (exp 121.0) from 121.4, Business Expectations index slipped to 106.3 (exp 106.5) from 107.4

Putting aside the fact that the budget still needs to be passed and then implemented, markets will be hoping that the release of June German Ifo business sentiment and business expectations data is an improvement on yesterdays disappointing PMI data which saw risk appetite take a knock and markets slip back and close lower.

GBP sustains more damage yesterday, particularly against the US dollar and Swiss franc after CBI retail sales for June plummeted from 13 in May to -2. This reinforced the perception, which gained traction earlier this week, that UK interest rates were now unlikely to rise before 2012. This morning the governor of the Bank of England is holding a press conference and traditionally he does tend to talk the pound lower, though given that the Bank is releasing its Financial Stability Report, Mr King may prefer to focus on the risks of the crisis in the euro zone and the impact a further deterioration could have on events here in the UK.

Another positive factor that could well boost risk appetite were reported comments by Chinese premier Wen Jiabao that inflation appeared to be under control and assuaging concerns of further imminent interest rate rises from the Peoples Bank of China.

Later on, just before US markets open US Q1 GDP final revision is expected to come in unchanged at 1.8%, reinforcing the Feds downbeat message of Wednesday night.

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