The dollar has staged a rebound this morning after the House of Representatives passed a deal to extend the US's debt ceiling and implement budget cuts of at least $2.1 trillion over the next 10-years. The House was the more difficult roadblock for the bill to pass; it is now expected to pass the Senate in a vote later today.

The debt deal and news that credit rating agency Moody's had affirmed the US's triple A credit rating overnight helped to spur a mini- rally in the dollar. The greenback is up across the board, most notably against the yen the euro and the Swiss franc. But the US is still at risk from a downgrade from other rating agencies after Standard & Poor's said that the US was at risk of losing its top-rating unless there were $4trn of cuts over the next decade.

Since the US politicians have fallen short of this number one can assume a downgrade is on the cards, but it will be interesting to see if the US is indeed downgraded in the coming days. If it is then we would expect a fresh bout of selling pressure on the greenback at least in the short-term.

In contrast to the greenback, stock markets, commodities and Treasuries yields continued to slide for the fifth straight day. The market's focus has now shifted back to the global growth dynamics. Yesterday's US manufacturing ISM slid to its lowest level in 2-years, while PMI's in Europe fell to their lowest level in 3 years, the UK's manufacturing sector contracted in July and Chinese PMI, although stronger than expected, was still at its lowest level since early 2009. The global growth picture is turning gloomy as many predicted it would, however, the pick-up many expected in the second half of the year shows no sign of happening at this early stage.

10-year Treasury yields have dipped to their lowest level since October 2010 and are currently trading below 2.7%. The debt ceiling issues may be spooking FX markets, but in flows into Treasuries have kept rising. Even if the US loses its triple A rating in the coming days, US credit markets are still the most liquid in the world. There is no alternative to Treasuries in the market, and while the US teetered on the brink of a default this week credit investors were still treating Treasuries as a safe haven. If growth continues in this vein then we may see Treasury yields collapse further, possibly to the 2.4% level reached prior to QE2 last year.

The week is dominated by economic data. Friday's US Non-Farm payrolls will be the key indicator to watch out for. Ahead today UK construction PMI, Eurozone producer prices and Eurozone PCE - a measure of inflation looked at by the Fed - are released. The PCE out of the US will be the most important data release; the markets expect it to show fairly weak inflationary pressures, if this happens then Treasury yields could fall even further.

Elsewhere, there were reports that the Bank of Japan could ease monetary policy further when it meets on Friday. Added to this the Finance Ministry expressed concern at the level of USDJPY, this is to be expected due to the sharp decline to 76.30 yesterday.

The RBA remained on hold today. The Aussie dollar fell below 1.0900 on this news and the recovery in the greenback. Although the RBA noted that underlying inflation pressures may be rising, its statement sounded like it is firmly on hold for the time being. The Aussie is doing lots of the tightening for the RBA, so a strong currency is probably going to be accepted by Australia's central bank.

Data Watch:
UK 09:30BST (0430 ET) PMI Construction (Jul) index n/a 53.6 53.1
United States 13:30BST (083 ET) Personal Income (Jun) m-o-m 0.30% 0.30% 0.20%
United States 13:30BST (0830 ET) Personal Spending (Jun) m-o-m 0.00% 0.00% 0.10%
United States 13:30bst (0830 ET) PCE Core (Jun) y-o-y n/a 1.20% 1.40%

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