Building on gains seen going into the weekend, the euro pushed to three week highs versus the dollar in early morning trade. As well as positive reaction to last week’s EU deal, the single currency is also benefiting from a round of general dollar selling on the back of the impasse in the US debt talks. Taking out a number of key resistance levels along the way to highs of $1.4510, the euro is expected to continue to find support near term.

Concerns about the US debt problem are also weighing on the USD versus the yen and Swiss franc, particularly after an overnight speech from President Obama made it clear that there was no deal in the pipeline, with little sign of any near term resolution. Dollar/yen fell to four month lows, while the USD hit yet another record low versus the Swiss franc, which remains the safe haven currency of choice. It later trimmed its losses but downside risks remain. Indeed, the dollar is likely to come under further selling pressure as the August 2nd deadline approaches on a mix of near term uncertainty about how a comprise will be reached and the prospect of potential default, as well as longer term concerns about the impact of required fiscal tightening on the economy.

Sterling faces a key challenge today, with the first estimate of Q2 GDP due for release at 9.30am. Consensus forecasts show a growth rate of 0.2%, down from 0.5% in Q1. This is likely to reinforce the view that the Bank of England will leave UK rates on hold for some time to come. The Pound exchange rate is on the back foot versus the euro ahead of the release, though has seen some gains versus the USD given general market moves. US data worth watching this afternoon include the Case Shiller house prices index for May, as well as the latest consumer confidence and new home sales.