USD - The dollar is stronger this morning against its major counterparts as Fed Chairman Bernanke stopped short of signaling further stimulus for the economy in his testimony before the Senate. He did tell the congressional panel that risks to the economy have grown and that the Fed is prepared to take further action as appropriate, but the stance isn't exactly new. This morning saw the release of the consumer price index with no change from last month's reading, with the annualized headline figure coming in at 1.7%. Bernanke stated that he sees inflation risks as relatively low now, and that there is a modest risk of deflation. With today's data, and with the labor market continuing to struggle, the Fed has the room to act should it deem necessary. However, that raises the question of what further steps policymakers could take. With interest rates already near flat, another round of quantitative easing may have a limited impact. Meanwhile, industrial production data beat out forecasts, gaining 0.4% after a 0.2% contraction in the previous reading. In light of the slowdown in Europe and East Asia, the general outperformance of the US economy will continue to provide support for the USD in the near term.

EUR - The euro tumbled back towards the bottom of its recent ranges, erasing yesterday's gains, as the Fed failed to signal that another round of QE is imminent. Data released this morning showed that economic sentiment in the Eurozone declined to a six-month low as the worsening economic conditions throughout the region are weighing on consumers' wallets. Most interestingly, the gauge of German investor confidence tumbled to 21.1 from 33.2 in the previous reading as austerity measures in neighboring countries stymies demand for German exports. However, an increase in market volatility and falling confidence may in fact support German exporters in the longer term. With European investors flocking to the perceived safety of German Bunds, thus driving yields to all-time lows, and with the ECB in an easing cycle, support for the EUR appears to be tenuous at best. The resulting downward pressure on the currency in turn makes German exports more competitive as they become relatively less expensive overseas. While the region likely won't be able to export its way out of a recession, a bump in manufacturing certainly could soften the blow of economic contraction.

GBP - The pound pared much of yesterday's gains in early trading as British inflation unexpectedly slowed in June. UK CPI fell to 2.4% on an annualized basis versus the 2.8% reading that was expected. The so-called core number declined even further to 2.1%, thus leaving the door open for further BoE stimulus measures. The GBP did however break back below the key 0.80 handle against the EUR as converging interest rates prompts investors to seek the relative safety of British assets.

JPY - The yen bounced higher on speculation that the BoJ will ease monetary policy further in the coming months. Morover, Japanese officials are again becoming outspoken about the recent yen strength, calling gains speculative, and stating that the Bank will carefully watch movements in the currency market and take decisive action if needed. While another intervention doesn't appear imminent, any further gains back towards the key 78 level will heighten the risks of further JPY selling.

Commodity Currencies - The commodity linked currencies are modestly lower this morning as stocks and equities both swing between gains and losses. Raw goods are slightly lower with oil falling to $88/bbl, gold sliding to $1576/oz, and copper declining to $345/lb. The CAD consolidated within its ranges overnight, but the bias remains for the loonie to strengthen as the BoC proves to be the lone G7 central bank still with a hawkish bias. Central Bank statements released this morning showed that while foreign headwinds are restraining the Canadian economy, supportive domestic factors may prompt a modest withdrawal of monetary stimulus. The AUD edged higher in early trading after swaps data showed that the likelihood of the RBA cutting rates at their next meeting had fallen to 62% from 75% just last week.