USD - The dollar is lower against many of its major counterparts as stocks and commodities rebound from yesterday's modest selloff. The bounce back in confidence comes after the release of softer than expected economic data, fueling speculation that the Fed will pursue a third round of quantitative easing. Weekly jobless claims edged higher, coming in at 366K, up five thousand from last week. Housing starts also fell short of expectations at 746K versus the anticipated 756K. Finally, Philly Fed. data missed the mark, registering -7.1, which was an improvement from last month's reading of -12.9, but was short of the -5.0 that was forecast. Signs of continued weakness in the labor and housing markets, combined with yesterday's unexpected decline in headline inflation, provide US policymakers with ample room to ease policies further should they deem it necessary. However, on a more positive, forward-looking, note building permits gained by more than expected, rising to 812K. As such, the dollar has come under pressure against most of its G10 counterparts as investors price in the depreciative effects that QE3 would have. However, thin summer trading will likely keep the dollar relegated to its recent ranges, at least in the near term.
EUR - The euro pared overnight gains, pushing back to the top of its recent ranges against the USD after the economic data releases in the US. Yet, the common currency remains within its well-worn ranges this morning, finding significant resistance at its 50-day moving average near the 1.24 handle. While the lack of news out of the bloc with many Europeans out on holiday has been supportive of the EUR, the underlying economic concerns remain. As negotiations progress on the installment of an overarching European Banking Authority (EBA), analysts are now concerned of how the ECB and EBA will interact. The initial plan was for the EBA to coordinate with regional supervisors in the 10 non-Eurozone EU nations as well as the ECB. However, the ECB's legal independence could allow it to either override or simply ignore EBA decisions. Policymakers are also weighing changes to the EBA's voting rules to prevent Eurozone members from dominating the London-based authority. With progress clearly slow-going, investors are growing increasingly concerned that the ECB won't be able to make good on its pledge to directly purchase sovereign debt should a Eurozone member nation request assistance. Consequently, today's gains may prove fleeting with such uncertainty ahead.
GBP - Sterling is also higher this morning, supported by the rebound in risk appetite, and after data showed an unexpected rise in British retail sales. The core measure was flat from the previous month, but the reading proved better than the 0.2% contraction that was expected. With the volatile fuel component included, sales gained by 0.3% versus an expected decline of 0.1%.
JPY - The yen is lower against all of its counterparts this morning as investors seek greater returns. The risk-on rally has pushed the yen to a one-month low against the USD, but a break back above the key 80.0 handle seems unlikely without further progress on resolving the European debt crisis.
Commodity Currencies - The commodity linked currencies are relatively flat this morning despite the rebound in stocks and commodities. The CAD continued to strengthen, supported by rising expectations of QE3 in the US, which would in turn support demand for Canadian exports. Similarly, the MXN is well supported despite a lower reading of GDP. Mexican economic growth cooled to 4.1% on an annualized basis from 4.5% in the previous reading. The AUD is marginally lower after a measure of foreign direct investment in China, the primary destination for Australian exports, dropped to a 2-Yr low. The NZD continued to outperform most of its peers despite a measure of New Zealand PMI which fell to 49.4 with a reading below 50 denoting contraction.