The dollar fell against the euro and yen, as worries about the state of the US financial market due to earning reports from banks being published this week.

The dollar could also face a more worrying period as a glut of US economic news comes out this week. Traders are anxious to hear speeches from the Philadelphia Fed today and New York Fed and the SEC chairman on Thursday in front of a House Financial Committee.

Key US data out this week includes June’s existing home sales on Thursday and new home sales data on Friday.

Top forecasters have suggested that the outlook for the UK economy next year is bleak as business confidence is fading due to recent results.

Ernst & Young Item Club has predicted that growth in 2009 will be just 1%, as living costs rise and falling house prices have a negative effect on consumer spending. They went on to say that employers confidence had fallen to its lowest level since 1996.

A minimal growth of disposable income combined with a sharp rise in food and fuel costs, means that spending on non-essential items will be cut.

The US government announced that it plans new measures to bolster the two largest US mortgage companies, Freddie Mac and Fannie Mae. The new measures will call on the US Congress to increase the firm’s access to credit, and permit the Treasury to purchase shares in the companies when needed.

The Federal Reserve has also stated that it would lend to Freddie Mac and Fannie Mae if additional funds were required.

The euro continued to climb higher against the dollar today, ahead of the European Central Bank’s decision about interest rates tomorrow. It is widely expected that the ECB will raise interest rates, the first time since June 2007.

The dollar had seen a brief boost on Tuesday after better than expected ISM manufacturing data was released, but this was short lived as traders remain unconvinced that the US economy has turned a corner.

The Forex market is bracing itself for what could be an unpredictable week, as an influx of key economic releases and US Independence Day holiday is expected to add to the volatility of the market. US dollar traders will be eagerly awaiting the release of ISM Manufacturing and NON-Farm payroll data, while euro investors will see the Euro-zone inflation and German labour data. It is also expected that the European Central Bank will raise rates for the first time since last June.

The Federal Reserve has announced that US interest rates are to be held at 2%, amidst continuing worries in the housing market and consumer confidence allegedly at its lowest level in 16 years.

The move was an expected one, with analysts stating that the Federal Reserve is facing a balancing act, as it copes with rising prices and economy slowdown. A recent survey has suggested that house prices were significantly lower in April, compared to the same time last year.

US investment bank, Lehman Brothers is being sued by one of its shareholders and accuses the firm of misleading investors over sub-prime loans. The lawsuit states that the senior managements conduct has led to significant financial loss for its shareholders.

The Wall Street bank, last week announced a quarterly loss of more than $2.8 billion as shares have fallen by 60% this year over fears of more bad debts.

The pound fell against other currencies as UK Consumer Price Index (CPI) rose by more than expected in May, reinforcing the views of Mervyn King the governor of the Bank of England who warned that rising food and energy costs could push UK inflation higher than 4% by the end of the year.

UK CPI was up to 3.3% in May, compared to just 3% in April, this was mainly due to the rising cost of meat products and vegetables. An increase in energy bills was also an important factor, as well as rising book, stationery and foreign holiday costs.

The Asian Development Bank (ADB) has stated that the threat of high inflation could undo the progress of the past 20 years, and remains a major worry for the Asian market.

Rajat M Nag, managing director of the ADB said that inflation would exceed the 5.1% that was predicted in April. Rising food and fuel prices are the main dangers that are affecting the Asian inflation rates.

Rising inflation could damage investment and corporate earnings, which in turn could destabilise governments in the region.

UK motorists are being urged to buy fuel only if they need it, as tanker driver start a four day strike over pay.

The tanker drivers, that deliver fuel to Shell forecourts in the UK, went on strike this morning and have picketed numerous sites throughout the UK.

A last ditch meeting, aimed at resolving the issue ended without agreement as the Unite Union rejected an enhanced pay offer.

It is thought that the knock on effects of the strike will be felt almost immediately.