USD - The dollar is mixed this morning as stocks and commodities fluctuate between gains and losses. Despite the pickup in financial market volatility, the dollar has edged lower against many of its higher-yielding counterparts. Data released this morning is suggesting that the yield differentials may widen further after inflation unexpectedly cooled in July. CPI stagnated for the second month in a row versus an expected gain of 0.2%. On an annualized basis, headline inflation has cooled to 1.4% from 1.7% in the previous reading. The numbers appear contradictory to yesterday's higher-than-expected reading of PPI, but in fact highlight the painful situation in which retailers are fully absorbing wholesale cost increases without adjusting their prices higher. Elsewhere, a gauge of manufacturing activity in the New York region unexpectedly fell to -5.85 versus the expected reading of 7.00. On a more positive note, industrial production beat expectations, rising to 0.6% from 0.1% in the previous reading. Finally, a measure of capital flows into US treasuries showed a sharp decline, coming in at $16.7B in July versus $121.3B in June. The drop off reflects easing investor fears with Europe's woes fading for the moment and despite signs of further slowing in the global economy. As a whole, the data is negative for the dollar as the inflation numbers show the Fed likely has room for QE3 while the TIC figures suggest the dollar's appeal as a "safe-haven" may be waning.

EUR - The euro fell back towards the bottom of its recent narrow ranges overnight on speculation of increased selling. The Swiss National Bank's FX reserves have ballooned over the past year with the CHF now pegged to the EUR at 1.20. However, with the SNB looking to diversify its holdings, they have turned around and sold some of those euros against the USD and GBP amongst other currencies. The common currency also came under pressure as Spanish PM Rajoy scaled back his pledge to address the budget deficit. The Spanish government said that it would extend long-term unemployment benefits for another six-months as the nation's labor market continues to struggle. Consequently, the EUR has broken lower as investors fear that Spain may not meet the requirements of the ECB's bond buying program should they need assistance. The news also comes as EU Commissioner Olli Rehn signaled that Spain is considering a request for an international bailout.

GBP - The pound is higher against both the EUR and USD after British jobless claims unexpectedly declined by 5.9K. The move was enough to push the UK unemployment rate lower to 8.0% from 8.1% in the previous reading. Moreover, minutes from the BoE's last meeting showed that the policymakers voted unanimously to keep their policies unchanged. Thus, the pound may push back towards the top of its recent ranges in the near term as expectations of further BoE monetary easing are scaled back, at least for the time being.

JPY - The yen extended its losses overnight as investor risk appetite returns. Demand for Japanese assets has also been declining with the yields on JGBs climbing to a six-week high. Data due this afternoon will provide a snapshot of capital inflows into Japanese stocks and bonds, but further declines from the previous reading are to be expected as investors seek higher yields.

Commodity Currencies - The commodity linked currencies are generally higher this morning despite the rather grim outlook for global economic growth. Raw goods are largely higher with oil rising to $94/bbl, gold at $1602/oz, and consumables all in the black. The CAD extended its gains after yesterday's US retail sales report as investors expect it to translate into continued demand for Canadian exports - energy in particular. The AUD and NZD both pared early losses after US industrial production gained, with rising commodity prices leading both currencies higher. The AUD also gained after a private survey showed that Australian business confidence advanced from a 10-month low. Meanwhile, a report showed New Zealand retail sales gaining by more than anticipated.