USD - The USD remains well entrenched within its recent ranges despite trading through a particularly volatile overnight session. On one hand, investors are encouraged by signs that global policymakers are taking steps towards backstopping the world's struggling economies. However, the efficacy of these policy steps remains questionable. Data released this morning suggests that the Fed may have the room to pursue further policy easing, but recent commentary from the central bank suggests that another round of QE may not be at hand just yet. The import price index contracted by 1% in May, registering in line with expectations. Investors will now wait for tomorrow's producer price index and Thursday's consumer price index to see if the lower input costs result in falling price tags. With inflation easing and the labor market showing signs of stagnation, the Fed may prompted into action sooner rather than later with another round of monetary easing. However, with long-term interest rates already near record lows, further declines resulting from central bank purchases may not have much of a material impact on demand. What another round of QE may do though is weaken the dollar, which would be beneficial to exporters as falling global demand amplifies the need for competitiveness. In the meantime, the dollar will remain well supported within its recent ranges by safe-haven demand.

EUR - The euro pared an overnight rally for the second straight day as the plan to fund Spanish banks reached over the weekend has failed to assuage investor fears. EU officials have pledged up to €100B for recapitalization, but the actual amount needed won't be known until an external audit is completed later this month. It's also unclear how the loans will impact Spain's credit after Fitch downgraded the nation's rating to just one step above junk status late last week. Spain also faces a number of challenges beyond the banking sector with unemployment currently over 25% and debt yields still rising. Meanwhile, investors are growing increasingly fearful of Greek elections scheduled for this weekend. The concern is that anti-austerity lawmakers will win enough seats in parliament to derail the bailout program extended to Greece earlier this year. Elsewhere, markets are growing increasingly concerned that Italy may soon come into investors' crosshairs with debt yields continuing to surge higher. The French political landscape is also looking quite volatile as parliamentary runoffs are scheduled for this Sunday. As it stands, it does not appear that President Hollande's Socialist Party will win a majority of seats in parliament, possibly necessitating an alliance with the Left Front, which strongly opposes government austerity measures. This could derail any initial progress Hollande's administration has made with conservative German counterpart, Angela Merkel.

GBP - Sterling is sharply higher against both the USD and EUR this morning, albeit within its recent ranges. The pound edged higher as the modest reprieve in the risk-off atmosphere provides support as British interest rates remain higher than those in the US. The temporary pause in the ongoing debt crisis is also reducing investors' expectations for quantitative easing in the UK. Meanwhile, British industrial production registered in line with expectations at -1.0% after last month's larger 2.6% decline.

JPY - The yen edged lower overnight as rising stocks and commodities sap demand for its relative safety. The JPY also fell after the IMF said the currency was overvalued and that Japanese officials should consider further stimulus measures. The comments come just days ahead of the BoJ's next meeting, and with two new rather dovish members recently added, investors are beginning to price in further monetary easing.

Commodity Currencies - The commodity linked currencies are generally higher this morning as the early rebound in stocks and commodities supports risk appetite. Oil pushed higher to $83/bbl, gold broke back above $1600/oz, and copper rose to $334/lb. The CAD reversed overnight losses as the price of oil - Canada's primary export - rebounded. The MXN gained by nearly a percent against the USD as optimism that global policymakers' actions will support their struggling economies prompts a bit of risk taking. Similarly, the AUD and NZD are both higher as investors seek their relatively high yields and as technical studies indicate that recent declines in both currencies were overdone. The kiwi is also higher after a report showed New Zealand home prices climbing by more than expected in May.