USD - The dollar extended its weekly declines against most of its major counterparts overnight as investors turn their focus to next week's full slate of central bank meetings. With growth in the world's largest economies showing signs of weakness, the market has begun to expect that further stimulus measures are forthcoming. Reinforcing these suspicions, US second quarter GDP was downwardly revised this morning, dropping to 1.5% from 2.0% as consumer spending slowed. Nevertheless, today's reading was slightly better than the consensus forecast of 1.4%. Persistent weakness in the domestic labor market combined with the ongoing debt crisis in Europe and the looming "fiscal cliff" are weighing on sales at the nation's largest retailers. Investors suspect that the Fed is thus considering a third round of quantitative easing to jumpstart the economy. Meanwhile, the U. of Michigan confidence report improved slightly today, gaining to 72.3 from 72.0 in the previous reading.

EUR - The euro extended its recent gains after ECB President Draghi sparked a relief rally after saying the EUR is "irreversible." Draghi went on to say that the ECB will do everything "within its mandate" to backstop the region's economies. However, such lofty expectations leave room for substantial disappointment. The comments sent yields on Spanish and Italian debt tumbling, but the Bank will have to overcome stiff core opposition to restart the direct purchase of sovereign bonds. Moreover, the debate between pro-growth and pro-austerity policies will likely heat up as the regional economies slip deeper into recession. Even Germany, the economic engine of the region, is showing signs of weakness with manufacturing, services and business confidence data all falling short of expectations this week. Finally, suspicion of a Greek exit from the Eurozone is likely to regain traction in the coming weeks as the nation's international lenders find little evidence of fiscal consolidation, thus jeopardizing future bailout installments.

GBP - Sterling extended its recent gains against the dollar this morning, rising to a 5-week high. The recent ECB comments and expectations of further Fed stimulus are encouraging a bit of risk assumption, which in turn is helping the GBP higher. Moreover, with the London Olympics officially starting today, the outlook for the British economy is better than it has been in quite some time.

JPY - The yen is sharply higher this morning on growing expectations that Japanese policymakers will soon step in to weaken the JPY. CPI and retail sales data both fell short of expectations overnight as the yen's relative strength limits the competitiveness of Japanese exports. However, future rounds of currency market intervention are likely to target the EUR/JPY with the pair having recently reached an all time high. Moreover, Finance Minister Azumi has also said the government will weigh the need for fiscal stimulus after GDP figures are released on August 13th.

Commodity Currencies - The commodity linked currencies continued to rally overnight, as rising stocks and commodities encourage a bit of risk taking. Oil looks set to close out the week above the key $90/bbl handle, gold is up to $1616/oz and copper is stronger at $342/lb. The CAD reached a fresh 10-week high against the USD as did the MXN as successive rounds of Fed stimulus would support demand for Canadian and Mexican exports. The AUD and NZD have both extended their recent gains, benefitting from the general risk-on trading atmosphere.