USD - The dollar begins the day mixed against its major counterparts as investors digest a pivotal German court decision ahead of tomorrow's Fed announcement. Expectations are clearly high that the FOMC will at the minimum hint at further stimulus measures with another round of quantitative easing a strong possibility. With US economic data having shown a steady decline over the past six months and with unemployment remaining frustratingly high, investors are betting the Fed may be compelled to intervene. Policymakers may also be eyeing the depreciative effects of quantitative easing on the dollar as way to jumpstart the manufacturing sector - one of the bright spots for US hiring over the past three years. Finally, Fed Chairman Bernanke may also look to put a lasting mark on his tenure as the head of the central bank ahead of November's election season. Data this morning supports further easing with the import price index merely reversing last month's decline of 0.7%, short of the 1.5% gain that was anticipated. However, investors and Fed policymakers alike will have to wait until Thursday's much anticipated CPI report to see if the smaller-than-expected gain in import prices can further ease headline inflation.

EUR - The euro neared a fresh four-month high against the dollar this morning after Germany's Constitutional Court rejected efforts to block approval of the ESM - the region's permanent "bailout" fund. The decision is a victory for German Chancellor Merkel, who championed the €500B fund, and paves the way for the ECB to implement its newly announced bond-buying scheme. However, limitations are again in view with the Court also ruling that Germany's €190B contribution to the ESM cannot be increased without legislative approval. Investors are thus fearful that if either Spain or Italy requires a full-fledged sovereign bailout like the ones extended to Greece, Ireland, and Portugal, the ESM will be fully tapped in rather short order. Nevertheless, in an encouraging sign, Spanish PM Rajoy told the country's parliament that he believes they may not need to ask for further international assistance. "The only option I am considering is using the ECB's announced mechanism," Rajoy said, "it is completely ruled out that we would ask for a bailout for the whole country." Consequently, the common currency has continued to edge higher, extending its five-day winning streak. However, the key 1.30 handle remains a major point of resistance with a break above unlikely unless the Fed announces QE3 at the conclusion of tomorrow's FOMC meeting.

GBP - Sterling pared early gains, but remains towards the top of its recent ranges after the UK unexpectedly shed 15k jobs and the unemployment rate pushed higher to 8.1%. However, the disappointing labor market data will likely have a limited impact in the longer term as the BoE is expected to remain on hold for the remainder of the year. The GBP also lost some of its recent support after the German court decision eased investor concerns over the Eurozone.

JPY - The yen pared some of its overnight gains, but remains well entrenched below the key 78 handle vs. the dollar. With further Fed easing likely further narrowing the yield gap between US and Japanese assets, the yen has been well supported. However, Japanese officials have become increasingly outspoken against "speculative" moves in the yen with a push towards the lower 77's possibly triggering another bout of central bank intervention.

Commodity Currencies - The commodity linked currencies are mixed this morning with the CAD and MXN both falling while the AUD and NZD edge higher. Oil, gold, and copper are all relatively flat this morning at $97/bbl, $1732/oz, and $369/lb respectively. The CAD remains near the top of its recent ranges against the USD, but Canadian Finance Minister Jim Flaherty took some of the wind out of the loonie's sails when he raised his doubts about the Fed's ability to spur growth in the US - Canada's main trading partner. The AUD and NZD both pushed higher on improving investor sentiment. The biggest mover amongst the G20 currencies overnight proved to be the ZAR as continued civil unrest at the nation's mines has spurred a steep selloff (-3.0% vs. USD, -3.25% vs. EUR).