USD - The dollar is sharply stronger this morning, gaining against all of its major counterparts other than the JPY on a fresh wave of risk aversion. Stocks and commodities are both beginning the day deep in the red on renewed concerns that the ongoing debt crisis in Europe could weigh on the broader global economy. Overnight, the World Bank released a rather morose assessment of the Chinese economy, stating that a slowdown on the mainland will weigh on the Asia-Pacific region with economic growth expected at 7.6% this year. Along with the heightened fears of a worsening Eurozone crisis, investors have increasingly turned to the USD's relative safety, pushing the dollar index to its highest levels since September 2010. The dollar's attractiveness is being further supported by evidence of the continued outperformance of the US economy with new home sales gaining by more than expected this morning, coming in at 343K. The house price index also beat the consensus forecast at +1.8% versus the +0.3% expected. With the risk-off trade quickly gaining momentum, the USD will likely remain well supported in the near term.

EUR - The euro is sharply lower this morning against the majority of its major counterparts as EU leaders gather in Brussels for an impromptu summit. While no major policy changes are to be expected from today's meeting, it presents the first major forum at which newly elected French President Hollande's pro-growth strategies will be in clear contention of Germany's stance on austerity. Meanwhile, Greek Prime Minister Papademos reminded markets why the debate exists in the first place when he reiterated to the Wall Street Journal that the risk remains that stringent austerity measures will drive his nation to abandon the EUR. The most recent polls out of Greece suggest that the pro-austerity New Democracy party is gaining support ahead of the June 17 elections, but still trails Syrzia, which has pledged to review if not reject the two EU/IMF/ECB bailout packages. As such, it appears the onus is primarily on German Chancellor Merkel, and any signs that she may be willing to change course on her policy stance possibly providing much needed support to the New Democracy party. Elsewhere in the Eurozone, Spain's prime minister reminded markets that the fourth largest economy in the region cannot last much longer with borrowing costs continuing to rise. While off their highs, yields on 10-Yr Spanish bonds remain unsustainably high at the current 6.2%.

GBP - Sterling is mixed this morning, gaining against the EUR while it slips lower against most of its other major counterparts. The pound came under pressure early on after the BoE released the minutes from the Bank's last policy meeting at which policymakers voted 8 to 1 to keep its asset purchase program on hold. However, data this morning suggests that the Bank might not be done easing just yet as retail sales contracted 2.3% versus a 2.0% gain in the previous reading. Nevertheless, the GBP's downside remains limited in the short term as investor demand is still high for the relative safety of British government assets.

JPY - The yen was the best performing currency overnight, gaining against all of its major counterparts as the BoJ left their policies unchanged. After yesterday's credit rating downgrade from Fitch Investor Services, the market had begun to anticipate a possible reaction from Japanese policymakers. While looser policy is not out of the question in the months ahead, the Bank's decision to remain sidelined for the time being combined with the recent spike in risk aversion will keep the yen well supported in the near term.

Commodity Currencies - The commodity currencies are sharply lower this morning on waning risk appetite. Raw goods are generally lower with oil falling to $90/bbl, gold tumbling to $1540/oz and copper slipping to $340/lb. The CAD neared a fresh yearly low against the USD even after Canadian retail sales registered better than expected at +0.4%. Similarly, the MXN slipped to its lowest levels since last December as the peso remains highly susceptible to risk sentiment. However, the weakening peso will likely keep the central bank from cutting interest rates as Governor Carstens told reporters just this week that the peso exchange rate is key the monetary policy decisions. The AUD and NZD both set new 2012 lows as the concerns over the health of the Chinese economy, the main destination for the South Pacific nations' exports, weigh on demand for the high-yielding currencies.