US Dollar
Temporary dollar strength was witnessed on the day following Mondayâ�,��"�s observance of the US Labor Day holiday.  With consecutive losses against the majors in recent sessions, the underlying greenback was due for a break.  However, the current strength may be considered only temporary as an empty economic schedule this week is likely to add to further weakness.  Even the scheduled pieces of data are likely to overshadow the mounting speculation that the Federal Reserve is indeed at the end of the current monetary tightening cycle.  Why?  First and foremost, weakness in the housing sector still looms over the market.  Today saw the release of a government report that cited the slowest growth in housing prices for the second quarter in almost 30 years.  Likely attributed to the lack of consumer interest due to higher interest rates and rising energy costs, the sector slowdown may be more reflective of a turn in consumption habits as the overall economy begins to grow at a slower pace.  The notion trickles into a slower growth rate, which was witnessed when US gross domestic product figures posted a 2.9 percent gain compared to a 5.6 percent rate forecasted for the first quarter. Ultimately, the slower rate of growth will act as a confirming signal that the recent 2-year wave of hikes is finally making their way through the economy.  Secondly, the sentiment looks to have shifted among policy makers as steadfast hawkishness has been replaced by a more lax â�,��"wait and seeâ�,� approach.  The approach was reflected on the day following an interview with St. Louis Fed President William Poole in the New York session.  Commenting on the current considerations by the Federal Reserve, Poole stated that the Fed can be â�,��"patientâ�,� in considering further rate hikes in the coming quarter as inflationary pressures are â�,��"well controlledâ�,�.  Although not a voting member this year, the suggestions seem likely to be shared amongst the whole board and will likely seal the deal for further dollar weakness should negative economic numbers continue their trend.

Euro
Todayâ�,��"�s price action wasnâ�,��"�t reflective of underlying fundamentals following the overnightâ�,��"�s release of Eurozone data to say the least.  Even as survey results printed positive, traders seem to be paring back positions on profit taking following the US holiday.  Included in the overnightâ�,��"�s schedule were uplifting retail sales figures accompanied by a manufacturing activity survey that proved earlier consensus estimates.  For the month of July, consumers were out and about as retail sales figures jumped above the declines expected by the market.  Consensus figures forecasted a monthly decline of 0.3 percent, against an actual increase of 0.6 percent.  The monthly improvement, subsequently, boosts the annualized comparison to a 2.5 percent climb compared to earlier survey estimates of 1.2 percent.  A boon for the economy, the most recent survey clearly reflects an uptick in consumer optimism as factors continue to turn themselves around in the Euro zone.  In contrast, the purchasing managerâ�,��"�s index for the services sector was slightly blander, rising in line with estimates of 57.5.  Although considered positive, the recent figure is a mere continuation of the tepid expansion in the manufacturing sector as the figure continues to just hover above the 50 expansionary minimum.  Nonetheless, both reports lend to further rate hikes in the Euro zone as European Central Bank President Trichet is likely to remain steadfast in his hawkish views.  Futures bets are siding with the notion, as the market continues to speculate on at least one more rate hike at the end of the year, with most expecting two.

British Pound
Increasing the likelihood of further Pound strength in the intermediate term, the British Retail Consortium released figures today that reflected consumer optimism.  For the month of August, total retail sales in the United Kingdom economy rose 5.5 percent.  The figure, somewhat surprising, is encouraging for the economy as it reflects slightly less hesitant consumer sentiment compared to earlier months.  The like-for-like sales gain of 2.5 percent on the year also boosts speculation of higher rates in the UK economy in the second half of the year.  Raising the benchmark repurchase rate by a surprising 25 basis points in August on continued inflationary pressures, the Bank of England will likely now consider the notion once again as previous concerns over lacking consumer interest are fading.  Granted, the decision may not come as soon as this weekâ�,��"�s decision, but the traders and market participants are expectant of a decision at least by year end.  Separate reports during the week should boost the notion as the market is privy to the nationwide consumer confidence survey later tonight with both industrial and manufacturing production reports expected for release tomorrow.  Results on all three are expected to show continued firming in the UK economy and will be coupled with the recent upticks in the housing sector and inflationary gauges before Thursdayâ�,��"�s decision.

Japanese Yen
Continued momentum from last weekâ�,��"�s capital expenditure report is adding to Yen strength to start the week as the underlying currency broke clear through the 116 figure in the overnight session.  With capital spending higher, rising at the fastest pace in almost 5 years, businesses may becoming more optimistic of near term future demand.  The notion is being coupled with expectations that Bank of Japan Governor Fukui will likely signal further rate increases by the central bank as inflationary pressures are seemingly rising in the worldâ�,��"�s second largest economy.  However, the decision may be contrary to the current state of consumer affairs, much like the Euro zone.  Consumption in the Japanese economy has been lackluster at best as individuals remain hesitant to spend according to expectations of the economy.  Any further rate hikes might further impede contributions from the consumer end which make up approximately 60 percent of an economyâ�,��"�s gross domestic product.  The figure is overwhelming when considering that capital investment on the part of businesses only contributes up to 15 percent to the overall figure.  As a result, although yen bulls are having their day on the first session back from the weekend, the momentum may be short-lived when considering the longer term fundamentals.

Kathy Lien is the Chief Currency Strategist at FXCM.