USD - The US dollar strengthened across the board at the start of this week, with the exception of the JPY and CHF, after reemerging debt concerns in the Eurozone added pressure to riskier assets. Despite the weighing fears of a Spain default and rescue package in the horizon, the USD underperformed against the safe haven CHF and JPY on developing concerns that a debt ceiling deal would not be enough to avoid a credit downgrade from the US' current AAA rating. Domestically, the Institute for Supply Management (ISM Index) reported manufacturing grew at its slowest pace in two years, falling to a reading of 50.9 in July. The report suggests that growth in the second half would be meager and consistent with the modest GDP rise of just 1.3% in the second quarter. A separate report from the Commerce Department showed construction spending rose more than expected at 0.2%. However, overall construction spending fell 4.7% from a year ago. Meanwhile, congressional leaders are scrambling to resolve a plan that will raise the $14.3 trillion debt ceiling and cut about $2.4 trillion from the deficit over the next decade. Investors are anticipating the announcement due Tuesday August 2nd, and if passed as expected, we should see a rally in the dollar.

EUR - The euro gave up much of its recent gains amid optimism that a debt accord had been reached in the US. The single currency dipped over 2 cents vs. the dollar to below $1.4250 on news that a broad agreement to raise the US debt ceiling had been reached ahead of tomorrow's deadline. Markets had fretted last week as an agreement appeared elusive amid a looming threat of a downgrade of US debt by ratings agencies that sent the euro above $1.45 and also powered the Swiss franc to record highs vs. the dollar. The euro was also dented on signs that economic growth in the region is slowing. The Eurozone Manufacturing Purchasing Manager's Index (PMI) slid to 50.4 in July from 52.0 the previous month. The report indicates slowing activity in the region with the reading only slightly over the 50 threshold denoting expansion. With worries of a debt ceiling package in the US subsiding, pressure is likely to revert to the euro to maintain its economic expansion in the region.

GBP - The UK's government bonds rose by the most in one week since March of 2009 as faltering growth and concern over the US debt ceiling fueled demand for a haven. The latter concern caused Sterling to strengthen against the dollar, rising 0.9% for the week. Despite this gain, the Pound remains the second worst performer over the past 12 months among the 10 developed market currencies, only beating the dollar. Consumer confidence fell in July, adding pressure on the Bank of England to keep the benchmark interest rate at a record low.

JPY - The Japanese yen remains near record levels as economic indicators show a steady recovery in the nation's financial system. The manufacturing PMI rose to 52.1 in July from 50.7 the previous month, while industrial production for June narrowed its annualized rate of contraction. The current levels of the JPY continue to be a concern for Japanese officials over implications for the corporate sector. However, officials have stated that they will not intervene ahead of the August 2nd debt ceiling deadline.

CAD - The CAD weakened over the past week as oil prices declined and GDP came in much weaker than expected, -0.3% versus an expected +0.1. Declining oil prices, coupled with a weaker than expected GDP release in the US, put pressure on the loonie. This week is very light on data, with no releases slated until Friday, when the unemployment figures will be released. As such, expect trading this week to revolve around commodity prices and releases coming out of the U.S.

MXN - The Mexican peso dropped to the lowest level in 2 weeks as the August 2nd debt ceiling deadline approaches. The US buys 80% of Mexico's exports, so any uncertainty around the US debt ceiling is driving the peso's weakness as the two economies are closely linked. Risk aversion will likely keep the MXN pressured, at least before August 2nd.

AUD - The AUD continued to strengthen last week, capped off by a move higher this morning following the agreement to raise the debt ceiling in the United States. This move has spurred demand for higher yielding assets and the AUD has been the main benefactor. The AUD also was strengthened by the news that China's manufacturing slowed by less than what economists had forecast. This has been a longer term driver for the Aussie, as China is Australia's largest trading partner. The RBA meets tomorrow and opinion is mixed as to whether or not they will increase rates by another 25 basis points.