USD - The dollar extended its recent gains overnight against all of its major counterparts aside from the JPY, driven higher by safe-haven demand. Again, with little economic data to influence trade, currency markets are taking their cue from the selloff in both equities and commodities on renewed fears of a global economic slowdown. However, gains have been moderate even against the dollar's most volatile counterparts as investors increasingly expect that the Fed may be growing uneasy with the recent softness seen in the labor market. Nevertheless, a third round of stimulus still seems distant with several key Fed policymakers recently voicing their bias towards job training and education over another round of QE. Richmond Fed President Lacker told reporters that additional fillips of aggregate spending are unlikely to be an effective policy response to unemployment. Although, with capital inflows likely to increase as investors seek the dollar's relative safety, the Fed may be prompted into action as a stronger dollar would weigh on exports, thus stymieing recent jobs gains in key export sectors.

EUR - The euro fell for an eighth-straight day against the USD as the Greek political struggle intensifies and Spanish bond yields again broke above 6%. Today's drop marks the common currency's worst losing streak since 2008, albeit a far smaller decline this time around. In Greece, the Suriza party, which placed second in elections over the weekend, announced that it will forge ahead with plans to form a coalition government of left-wing parties. While an effective coalition is unlikely, the party's anti-bailout and anti-EUR positions are proving problematic. Meanwhile, investors fear that Spain may soon need a bailout much like those handed out to Ireland, Portugal and Greece over the past several years. However, recent data may serve as a glimmer of hope with Spanish exports on track for an 11% gain this year; better than France and on par with Germany. Labor costs have fallen sharply with unemployment surging in the past twelve months, thus making the cost of Spanish goods relatively cheap. The four-month old Rajoy administration has negotiated with Spanish labor unions to sever the link between wage increases and inflation in favor of a link to economic growth, thus making it easier for employers to negotiate wages lower. While the focus on exports will certainly serve the Spanish economy well, it may be too little too late to stop bond yields from rising to unsustainably high levels.

GBP - Sterling is again mixed, falling against the dollar while testing its best levels against the EUR since 2008. The pound fell back towards the lower end of its recent ranges against the USD after a report showed that British retail sale slumped in April, prompting investors to increase bets that the BoE will expand its asset purchase program at their meeting later this week. However, the GBP continue to find support on rising demand for British government bonds. Gilt yields fell to a record low this morning as a political uncertainty in mainland Europe weighs on investor risk appetite.

JPY - The yen extended its weekly gains this morning against its major counterparts, continuing to benefit from the recent wave of risk aversion. Japanese officials have remained remarkably quiet despite the recent appreciation, but that may change after reports due later this afternoon will likely show a significant uptick in foreign demand for Japanese assets.

Commodity Currencies - The commodity linked currencies are sharply lower this morning as risk appetite wanes and raw good prices continue to fall. Oil remained under pressure at $95/bbl, gold fell to $1592/oz and copper slipped to $365/lb. The CAD remains above parity with the USD as the European debt crisis weighs on demand for riskier assets. However, losses have been limited to within a percent of the key 1.00 handle against the USD as crude oil, Canada's main export, looks to be consolidating. The MXN extended its recent declines, falling to the lowest level since early January, as Mexican CPI fell short of expectations at 3.41%, keeping speculation alive that the central bank will lower interest rates. The AUD fell back towards parity with the USD for the first time since last December on waning risk appetite. The NZD has also extended its recent losses, having slid nearly 5% month to date, with little positive data to provide support. However, a rate cut from the RBNZ remains unlikely with Governor Alan Bollard telling reporters that there are very few tools available at the current juncture.