USD - The dollar extended its gains overnight with the dollar index rising nearly a quarter of a percent to a fresh two-year high at 83.75. The surge comes as stocks and commodities decline after yesterday's FOMC minutes left little hope for immediate central bank action. A majority of Fed members appear to be open to additional easing, but action will only be taken if economic conditions take a turn for the worse. Labor market data released this morning showed improvement, with weekly jobless claims unexpectedly dropping to 350k, the best in four years, as fewer auto plants shut down for annual retooling. Meanwhile, continuing claims continued their slow decline, falling to 3304k from 3318k last week. Import price data was also released this morning showing a larger contraction than expected at -2.7% vs. the forecast of -1.8% largely due to the lower price of oil. Investors will be paying close attention to tomorrow's PPI and next week's CPI reports to see if the lower input costs translate to lower wholesale and retail prices. However, unless inflationary pressures look to be giving way to deflation, or should the labor market come under renewed pressure in the weeks ahead, further easing is unlikely in the near term. As such, the USD will remain well supported as the primary safe-haven asset as global financial markets coming under increased stress.

EUR - The euro reached yet another two-year low against the USD this morning, before finding support under the 1.22 handle. Data released this morning showed that Eurozone industrial production extended its decline, falling by 2.8% after last month's 2.4% contraction, but came in slightly better than the 3.2% shortfall that was expected. Meanwhile, the official unemployment rate in Greece continued to push higher to 22.5%, up from 21.9% in the previous reading. Interestingly, a French debt auction overnight returned negative yields for the first time ever as investors embrace President Hollande's pro-growth platform. While France was stripped of its AAA credit rating at the end of last year, which sent yields higher, the market appears comfortable enough with the nation's finances to pay a premium to hold its debt, at least for now. This further highlights the underlying divergence between the Eurozone's so-called core and periphery and austerity vs. growth strategies. Combined with signs of slowing global growth, investors are turning to currencies other than the EUR like the traditional safe-haven USD and JPY, but now also the higher-yielding NZD, AUD, and CAD. Since its recent highs in May, the EUR has lost 9.7% against the NZD, 8.4% against the AUD, and 4.9% against the CAD. With all three nations retaining their AAA credit rating and offering relatively healthy yields, they have become attractive investments as the ECB's rate cuts make the EUR a viable funding currency.

GBP - Sterling edged lower against both the USD and EUR despite high safe-haven demand for British government assets. The UK government sold 10-Yr bonds today at a record low yield of 1.72%, but the pound still lost as investors expect the BoE will be forced to ease policy further amid signs that the economy is slipping deeper into recession.

JPY - The yen is stronger this morning against most of its major counterparts even as the BoJ unexpectedly increased its asset purchase program for a third time this year. The Bank expanded its asset purchase fund to ¥45T while keeping interest rates on hold. However, further stimulus is unlikely as BoJ Governor Shirakawa told reporters following the meeting that the Bank's inflation targets are likely to be achieved before too long.

Commodity Currencies - The commodity currencies are weaker this morning as raw good prices decline and risk appetite wanes. The CAD is lower as the price oil, Canada's main export, declined. However, losses have been limited after the strong jobs report out of the US, Canada's main trading partner. The AUD was the biggest loser of the group, falling over a percent against the dollar after an Australian labor market report unexpectedly showed that the economy shed 27k workers in June versus a forecast for a flat reading. A weaker jobs market opens the door for further RBA easing, dimming the outlook for the high-yielding Aussie