USD - The dollar is mixed this morning as disappointing economic data offsets positive gains on Wall St. Weekly jobless claims fell far short of expectations this morning, rising to 386k versus 352k in the previous week, and worse than the 365k that was expected. Existing home sales data also disappointed with the index falling 5.4% m/m versus the anticipated 1.5% gain. The disappointing news didn't end there with leading indicators and Philly Fed both declining by more than expected, registering -0.3% and -12.9 respectively. The negative data comes just a day after Fed Chairman Bernanke wraps up his biannual round of testimony on Capitol Hill in which he reiterated the central bank's willingness to ease monetary policy further if it deems it necessary. In light of today's reports, and with inflationary pressures on the decline, any further signs of a weakening in the labor market will certainly raise the odds of further stimulus measures. As such, stocks and commodities have both edged higher, and the dollar has lost ground against its higher-yielding counterparts. Nevertheless, the dollar remains relatively well supported against the other G4 currencies as the US economy continues to outperform its closest peers, even though at this point that's not saying much. With the relative calm in financial markets, the USD will likely remain range-bound, albeit towards the lower end against its higher-yielding counterparts.
EUR - The euro fell back towards the lower end of its recent ranges, paring sharp overnight gains. The break lower came after German Finance Minister Schauble told reporters that Spain will be liable for guaranteeing bailout funding. This would all but undo the progress from the EU's most recent summit as the plan would essentially make bank debt into sovereign debt in terms of liability. As such, yields on Spanish bonds have surged higher with the 10-Yr note breaking back above the key 7% threshold. Elsewhere, Greece is back under investor scrutiny after falling by the wayside since the successful re-do election in late June. Newly elected PM Antonis Samara risks alienating the voters who narrowly brought him to power just last month as his coalition government looks to force through $14B in fresh budget cuts. While more austerity will be hard for the Greek voters to accept, it likely will be necessary for policymakers to negotiate more lenient terms from their international creditors. As such, the common currency will likely remain under pressure in the near term as investors continue to focus on the regions ongoing fiscal and economic struggles.
GBP - Sterling pushed higher against both the USD and EUR, supported by the modest rebound in risk appetite. The push higher comes even as British retail sales registered lower than expected at 0.3% versus last month's 1.0% gain and short of the anticipated reading of 0.4%. As such, the pound's gains will likely be limited as investors expect the BoE will ease policy further in the coming months.
JPY - The yen rose to its strongest levels since the beginning of June as convergent G7 interest rates weakens the case against being long yen. Moreover, Japanese policymakers appear to becoming increasing reactive rather than proactive with Japanese economic activity showing signs of life.
Commodity Currencies - The commodity linked currencies are generally higher this morning as raw good prices advance. Oil broke back above the key $90/bbl handle, gold rose to $1587/oz, and copper gained to $353/lb. Speculation that both the Fed and Chinese policymakers will step up financial support in the world's two largest economies is prompting investors to assume a bit of risk, which in turn is supporting the high-yielding group of currencies. The CAD surged to a two-month high overnight, even as the data out of the US, Canada's main trading partner, disappointed. Similarly, the MXN consolidated near a three-month high as the outlook for Mexican export demand remains encouraging. The AUD reached an 11-week high in overnight trading on growing expectations that policymakers in China, the main destination for Australian exports, will increase stimulus measures to defend against further economic weakness. The AUD and NZD are also both higher as expectations for monetary easing in both nations dissipates