•  JPY strengthens as markets look to the safe haven currency

•  USD weak against most majors ahead of scheduled US bond sell offs

•  CAD gains ground as BoC Governor leaves post

USD – The US dollar weakened against most of the majors as US treasury yields eased slightly from multi-month highs. US yields retreated from 13-month highs as investors await further signs of an improving US economy for the Fed to pull back on its bond purchases. The US is scheduled to sell $35B of 5-year notes today and $29B of 7-year notes tomorrow. This was the 1st offering since Fed Chairman Bernanke said last week that reducing the pace of its purchases could occur if officials see signs of sustained improvement in growth. Against a basket of currencies the dollar index fell 0.5% to 83.694, pulling away from a 3-year high of 84.498 hit on May 23. Traders are citing a large sell order that has forced many in the market to exit long dollar positions.

EUR – The euro appreciated against the USD and a basket of 9 major currencies, gaining 3% following new German data releases. German unemployment rose 21,000 in May, 4 times its forecast and the largest increase since April 2009. Despite the larger than expected rise, the jobless rate held steady near 7%, just slightly higher than the low it reached throughout last year. In addition, German inflation was higher than expected but the overall euro zone inflation was 1.2% in April, still well below the ECB’s 2% target. Another release was the OECD’s growth forecasts that are weaker than the EU’s, reporting that euro zone inflation will be 1.5% in 2013 but more importantly falling to 1.2% in 2014. This outlook is the reason the OECD wants the ECB to push forth QE and lower the deposit rate into negative territory. The updated ECB inflation projection to be delivered in June will bring more light on whether further stimulus will be needed.

GBP – The sterling held steady against the USD but remains vulnerable to losses given expectations that the BoE will continue to ease policy. The sterling rebounded from a 2-month low largely due to USD sell offs which reacted to the failure of the dollar index to get above 84.50, a sticky level of resistance. Analysts say gains in the pound may be limited due to concerns that incoming BoE Governor Mark Carney may call for further stimulus to boost the withering British economy, when he takes post in July.

JPY – The Japanese yen strengthened against the US dollar as large sell off of equities forced markets to exit long dollar positions. When risky assets fall, safe haven currencies like the yen tend to gain. Recent equity market sell offs have caused the yen to recover after dropping to a 4-year low of 103.74 against the dollar last week on expectations of further monetary easing by the BoJ. The central bank is prepared to increase the frequency of its debt purchasing again upon the request of institutional investors to help lower volatility and stem a spike in yields. On Thursday, the BoJ will release a debt purchase schedule for June, which may include a jump to purchase JGB 10 times per month, an increase from May’s 8 per month.

Commodity Currencies – The Canadian dollar gained some ground against the US dollar as departing BoC Governor Mark Carney announced in his last meeting, that interest rates will be left unchanged. The Australian dollar dropped to its weakest level since October 2011 also dragging the New Zealand dollar down against the USD on signs the American economy is improving. For the 1st time in 4 years, the 10-year yield spreads between Australia and the US narrowed to the narrowest margin. Australia’s 10-year bond yield rose 15 bps to 3.47% with the US rising to 2.23%, narrowing the spread to 116 bps. In New Zealand, the RBNZ will disclose on Thursday the amount of kiwi dollars it sold in April, which will detail its low-level intervention operation announced earlier this month, which brought worries of the economy.