The euro has further reversed recent gains versus the dollar and sterling, while also falling back against the yen and Swiss franc as eurozone sovereign debt issues once again undermine sentiment. Markets reacted negatively to the overnight announcement from Moody’s that it was placing Spain’s AA2 sovereign rating on review for a possible downgrade on the back of increased vulnerability of its government finances and the risk of a sustained rise in funding costs. A lacklustre Italian bond auction yesterday is also weighing on the euro.

The single currency’s downside, versus the dollar at least, should be limited by the debt impasse in the US. The House of Representatives cancelled a vote on Speaker John Boehner’s plan to raise the debt ceiling last night, after he failed to even get enough support amongst his own Republican party members. Further delaying any compromise with the Democrats, this leaves stalemate going into the weekend, with five days remaining before a possible default, which should keep the dollar under pressure versus safe haven favourites like the yen and Swiss franc. This afternoon the dollar also faces the first release of Q2 GDP, which is expected to confirm a sub trend performance by the US economy.

Meanwhile, sterling is likely to be hampered by the latest round of UK data. The Gfk consumer confidence report for July released overnight showed sentiment falling back towards two year lows, further intensifying concerns that pressured households will weigh on an already fragile economic recovery. Meanwhile, the latest Nationwide house price report showed prices up 0.2% over the past month but down 0.4% in year-on-year terms. Other UK data to watch today include the mortgage lending and consumer credit report for June.