EUR - The euro broke above the key psychological 1.30 barrier against the USD overnight as investors turned to the second most widely used currency. With the Fed turning to the printing presses, the Eurozone's comparatively conservative policies are attracting capital inflows. Moreover, the recent easing of tensions regarding the ongoing European debt crisis is encouraging investors to reconsider the reward vs. risk of Eurozone assets. While a rebalancing of the EUR/USD exchange rate was bound to happen after the common currency's steep declines, further strengthening could reignite funding fears in the region's weaker economies. Much of the concerns of a Greek exit from the Eurozone were premised on the nation's inability to strengthen their trade position through the depreciation of their currency. That argument largely fell silent as the EUR/USD rate fell to the low 1.20's. However, with a test of the EUR's 2012 high of 1.3475 now appearing likely, Eurozone lawmakers may be growing uncomfortable with the pressure a stronger currency places on their economies. Even Germany, whose exporters have seen a sharp decline in foreign demand, is not immune to the pain of a strengthening EUR.
GBP - Sterling is also higher this morning as the Fed's new plan to purchase assets has spurred a bit of risk taking. Moreover, BoE monetary policies are looking rather calculated and conservative at this point with no further easing expected for the remainder of the year. BoE Chief Economist Spencer Deal told reporters this morning that "although the economy remains weak, I am convinced had we not undertaken those actions, we'd be in a far worse state today. The recession would be deeper, unemployment even higher."
JPY - The JPY is the sole major currency that is lower against the dollar this morning as fears of BoJ intervention and rising yields on US Treasuries are weighing on the yen. Despite the Fed's new plan to buy US assets, the yield gap between a 10-Yr Treasury and JGB has widened to 105bps as investors test the Fed's focus shifts to mortgage backed securities. The boost in confidence is also weighing on the JPY's "safe-haven" status.
Commodity Currencies - The commodity linked currencies are mostly higher this morning, extending their weekly gains as QE3 will likely provide support for raw good exports. The CAD consolidated near a 13-month high against the USD with the rising price of oil - Canada's main export - providing support. The AUD surged to a fresh seven-month high, but gains may be limited as investors suspect the RBA could cut interest rates further if the Aussie's gains don't track commodity prices.