U.S. political turmoil took center stage once again on Tuesday after two Republican senators Mike Lee and Jerry Morgan announced their opposition to replacing Obamacare. This suggested that the Better Care Reconciliation Act is dead for now. The news sent the Euro above 1.15 and USDJPY below 112, while U.S. Treasury bonds and S&P 500 futures dipped lower.

It seems markets are losing confidence that President Trump will be able to deliver on his promised plans. Six months in office and with no major legislation signed into law, it seems that the “The Art of the Deal” hasn’t worked so far in U.S. politics. With tax reforms now likely to face huge uncertainties and economic data signaling slowing economy, it will only be a matter of time before U.S. corporate earnings take a U-turn, thus ending the equities rally.

The Aussie was the best performing currency early Tuesday, hitting a two-year high against the dollar after minutes from Australia’s central bank noted an improvement in the economic outlook. Although the minutes did not suggest an imminent rate hike, the positive assessment of the economy and the surge in iron ore and copper prices drove spreads between Australian and U.S. 10-year government bond rates to their highest levels since December 2016. The next major resistance is seen around 0.80, but this would require continued deterioration in the U.S. dollar and fresh positive economic releases to break above.

The pound is also benefiting from the weak dollar but whether we see new highs today depends on inflation data for June. The recent hawkish remarks from monetary policy makers and the shift in Mark Carney’s language will draw special attention to these figures. I think the magical number today is 3. If headline inflation hits 3% or above, this will indicate a high chance of hiking rates when the BoE meets in August. However, if the numbers pull back, this would ease pressure on the central bank and traders will turn their attention to the Brexit talks.