The pound to dollar exchange rate is 0.219% higher with 1 GBP = 1.6451 USD. The euro to dollar exchange rate is 0.494% higher with 1 EUR = 1.4444 USD. Obama's announcement of an agreement to raise the debt ceiling and cut spending has boosted the USD at the expense of the safe haven currencies of the JPY and the CHF. "However, last week's soft GDP data raises the hurdle for future Fed tightening and thus challenges our view of rising interest rate expectations and an associated USD rebound during H2:11," say RBS in a morning currency brief. Nevertheless, RBS say that they retain their short EUR/USD trade recommendation as they anticipate that debt concerns will continue to trouble the periphery and semi-core Euro-zone nations, while slowing growth momentum in the core of the Euro-zone and moderating inflation also reduces the pressure off the ECB to raise rates. Thursday's ECB meeting, at which rates will be left unchanged, and Trichet's post-meeting press conference will be carefully scrutinised to see how the latest developments have affected their thinking. "We also retain short EUR exposure against the NZD and the AUD, where we believe policy tightening will surprise to the upside. In Australia this could begin at Tuesday's RBA meeting, at which RBS Economics see the potential for a 25bp hike despite the consensus for no change. In the UK, the manufacturing PMI slipped into contractionary territory for the first time in two years. Last week's Q2 GDP was not weak enough to persuade the middle-ground of the MPC to vote for further asset purchases, though neither was it strong enough that they are likely to vote for higher rates. However, it still remains possible that weak growth will derail the government's plans to cut the deficit and threaten the UK's AAA sovereign rating," say RBS.

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