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Last night’s vote in Congress was cancelled amid infighting in the Republican party as to the reach of the spending cuts. Renegade Republicans who want deeper cuts seem to have created such a roadblock to the progress of John Boehner’s plan that he withdrew it from voting and will have to consult them as to a compromise. Pressure will now fall back onto Obama and the White House to pick up the baton and get this deal to Tuesday’s finish line.

Markets are unnerved by this with yesterday making it 4 consecutive days of falls in US equities Other factors are keeping the FX spectrum in some semblance of order. This morning we have seen Moody’s put Spain’s Aa2 rating on review for a potential downgrade on the belief that there is increased risk for bondholders in the face of continual funding pressures i.e. austerity going well but we need more growth.

The euro was edgy in yesterday’s trade as well with Italy as the main instigator of market nerves. Firstly we saw an Italian bond auction disappoint against market expectations with the yield on its 10 yr debt rising to 5.77%, the highest since 2000. A similar bond auction a month ago gave up a yield of 4.94%; the debt deal last night has obviously not helped with the belief that the Eurozone is still heading down a very rocky road.

This was backed up by the Head of the Italian Treasury saying that market nerves showed that the crisis measures taken by the EU leaders require a follow-up (as evidenced in this morning’s Spain action). The danger line for European bonds appears to be 6% with anything higher seen as an unsustainable funding level. Of the countries that have not been bailed out (Greece, Portugal and Ireland) Spain currently sits at 6.08% with Italy at 5.917%.

There is also a smear of political risk for Italy as there has been a low-level spat between Silvio Berlusconi and Giulio Tremonti, his Finance Minister, rumbling on for a while. Tremonti is also under investigation in some expenses faux-pas and there were rumours yesterday that he had fallen on his sword. This later turned out to be incorrect however the euro was already on the skids.

Unfortunately these problems are not limited to Europe and US with some poor data from the UK published overnight. Consumer confidence once again dipped in the UK in July with to its lowest since April which itself was the lowest since March 2009. Consumers in the UK are unhappy, with the biggest fall in the index coming as a result of fears over the general economic situation through the next 12 months.

This morning’s release of Eurozone CPI for the month of July will be closely monitored for any increase in prices, especially following the higher than expected figures from Germany earlier in the week and the rogue comments from the ECB’s Christian Noyer. We also have the first estimate of Q2 GDP from the US due at 13.30 which have been tumbling in light of the uncertainty surrounding the situation in Washington. The forecast is for growth of around 1.8%.

Latest exchange rates at time of writing