Richard Franulovich, the head of FX strategy at Westpac, believes the risks to the U.S. outlook appear to be subsiding as lawmakers have forged a debt ceiling deal and US-China trade talks are set to resume next week.

• “A comprehensive deal will remain elusive but the goodwill gesture nevertheless underscores that trade risks will remain dormant for a few weeks.
• Against that Markit’s preliminary US July PMIs and the Richmond Fed index point to stagnant conditions for manufacturing (12% of GDP) and housing continues to look spotty despite lower rates. But, financial conditions are overall incredibly supportive (see over), June payrolls were solid (+224k), retail sales were very decent (control group +0.7%) and the core CPI rose more than expected (+0.3%). The Fed is unlikely to be dragged into a larger 50bp easing July 31.
• By contrast, the Eurozone data is still grim and the earlier very well worn US growth leadership story appears to be regaining legs. Short of an abandonment of the longstanding strong dollar policy (not entirely impossible) its still far too early to call the high for the USD.”