Concerns about the pace of recovery in the global economy, as well as sovereign associated risks in the US and the euro zone, are overshadowing forex markets with safe haven currencies like the Swiss franc and the yen benefiting as a result. The passing of the US debt deal has done little to ease concerns given that it fails to address longer term problems. Fitch Ratings agency yesterday called the deal “a step in the right direction,” but cautioned that the government still has more work to do to maintain its credit rating. Meanwhile, bond yields in Italy and Spain moved to record (euro era) highs on concerns about the scale of the euro zone debt problem.

Indeed, the CHF saw fresh highs against both the USD and EUR yesterday with investor sentiment also undermined by yet another batch of disappointing data. Reports showed that US consumer spending (which accounts for about 70% of total economic activity) fell unexpectedly in June to post its first decline in nearly two years as incomes barely rose, suggesting that economic growth could remain subdued in the third quarter. Though the euro has since managed to recover some modest ground versus the CHF, sentiment remained fragile overnight, with the spike in risk aversion also keeping the euro under some pressure versus the USD.

Today the focus will be on the services sector with ISM and PMI reports from the US and Europe due for release. Any further evidence that the global recovery is losing momentum will weigh on sentiment. Also on the agenda is the US ADP employment report for July, which should provide some direction ahead of Friday’s official payrolls number. Sterling has benefited from the sell off in the euro, trading close to two month highs, but remains on the back foot versus the USD. Overall the markets presents a reasonable buy price on both the Euro and US Dollar with the markets all seeing movement on both the NZD and AUD. The Australian and New Zealand Dollar remained under pressure in overnight trade as Asian stock exchanges followed Wall Street lower, dragging the sentiment-sensitive currencies downward.