USD - The dollar is mixed this morning against its major counterparts as gains on Wall Street are largely offsetting negative sentiment out of the Eurozone. Data released this morning showed that home builders broke ground in June at the fastest pace since 2008, jumping 6.9% m/m, as the housing market shows signs of rebounding. The release comes a week after an index of confidence in the housing market surged to the highest level since 2007 with the largest one-month gain in more than a decade. The improvement will likely prove to be a boon for the economy as it is supportive of broader consumer confidence.
Nevertheless, the dollar has come under pressure as investors anticipate further monetary easing from the Fed. While Chairman Bernanke hasn't directly hinted at a third round of quantitative easing in his testimony before either the Senate or House, he has made it clear that the central bank has ample room to act should it deem necessary. While the turnaround in the housing market and recent modest improvement in industrial production are reflective of sustained, albeit modest, economic growth, investors won't discount another round of QE with the unemployment rate hovering above 8% and inflation easing considerably. Investors will take note of the Fed's Beige Book later this afternoon for a read on their outlook for the broader US economy.
EUR - The euro is lower against most of its peers this morning after German Chancellor Merkel told reporters that the Euro project is at risk. Merkel did go on to say that she believes the project will succeed, but the optimism fell on deaf ears with the EUR retesting its recent lows. Comments from ECB Policymaker Joerg Asmussen regarding the future of the ESM, the region's permanent bailout fund, and the growing divide between the Northern and Southern Eurozone nations have also pushed the common currency lower. Further highlighting the divide, sovereign debt in both Spain and Italy came under pressure today with the yield on 10-Yr bonds rising to 6.96% and 6.07% respectively. The ongoing debt crisis has pushed the EUR to record lows against the safe-haven JPY as well as the commodity-linked CAD and AUD. The euro also reached a 12-Yr low against the SEK. Moreover, data this morning showed that demand for the EUR from sovereign wealth funds is drying up, most notably from China. In the last year, China's FX reserves grew by just 1.32% versus the 30+% average expansion seen per year over the past decade. If the trend continues, support for the EUR may weaken even further.
GBP - The pound diverged overnight, edging higher against the EUR, while falling slightly against the USD. British unemployment claims registered slightly higher than expected at 6.1k versus the forecast for 5.0k, but the unemployment rate pushed lower to 8.1% from 8.2%. Meanwhile, minutes from the BoE's last meeting showed that policymakers voted 7 to 2 for the expansion in their asset purchase program. Futures are also suggesting that the Bank will ease policy further in the months ahead, with a 0.25% rate cut expected by next April.
JPY - The yen gained overnight against most of its major counterparts after minutes from the BoJ's last meeting suggest that policymakers will be more reactive rather than proactive as economic activity improves. The Bank reiterated its commitment to powerful easing, and that they continue to monitor deflationary risks. However, with the IMF recently revising Japan's 2012 GDP higher to 2.4% from 2.0%, further easing will likely be moderate.
Commodity Currencies - Commodity linked currencies are generally higher this morning as rising stocks and commodities encourage a bit of risk assumption. The CAD extended its recent gains this morning as the price of oil, Canada's main export, pushed back towards the key $90/bbl level. Similarly, the MXN gained on speculation that policymakers in the US, the main destination for Mexican exports, will provide further economic stimulus. The expectations of further government support pushed the AUD to a two-week high against the USD. A measure of Australian leading indicators also gained by the most since last August as the economy continues to perform relatively well.