A flurry of worrisome banking news compounded Fed chairman Bernanke's recent words to Congress and shifted risk aversion up a notch Wednesday. The impact was to drive the Japanese yen higher against the global majors, while the euro is feeling the brunt of a sense that currency markets may have been overly efficient in discounting earnings and global economic recovery. The caveat accompanying our Monday morning “risk-on!” commentary was that it might pay to buck the trend in light of a weakening technical situation for the euro, which was showing clear loss of momentum. Today the euro slipped to $1.4176 and ¥132.90.

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 Share prices at both Wells Fargo and Morgan Stanley got off to a bad start after investors didn't like their respective earnings reports. A British journal, the Daily Telegraph picked up on analysis from JPMorgan Securities stating that Barclays bank and the Royal Bank of Scotland Group would need to raise capital of £12.8 billion and £8.5 billion each in order to expand under a revised regulatory regime. Both pieces of news are enough to remind investors that sitting at the best index price for the ScP in eight months doesn't necessarily mean we're out of the woods.

The Japanese yen rose to its highest in a week against the dollar, which weakened to ¥93.09 overnight despite a gain for Asian equities. The yen was stronger against both Australian and New Zealand dollars as investors discounted a rush to exit carry trades in which lower yielding currencies are sold short to fund higher yielding ones.

Recent data points covering the British housing market have surprisingly pointed to modest price gains, which in turn have restored faith in a broader economic recovery. However, today's National Institute for Economic and Social Research (NIESR) report dashed that broader theory. In it the think-tank said that recent price gains were most likely accounted for by a lack of available property on the market over the early summer. In addition the group suspects that when sellers reemerge house values will continue a downwards trajectory through 2012. They note that mortgage lending is running at 65% of its pre-crisis volume, hardly consistent with recovery. The implications for consumption going forward are clear in the event that the housing market deteriorates.

The NIESR report has helped rock the pound sterling today, which is weaker at $1.64 against the dollar. The report also predicted ongoing quarterly GDP contraction through the fourth quarter of this year. Also shaping the path for the pound today was an update on the latest thinking at the Bank of England as the July 7, meeting minutes were published. The MPC members agreed whole-heartedly to not expand its asset purchase program. Instead they agreed waiting for more data at the time of the August meeting, which will coincide with projections in the form of its Quarterly Inflation Report. Typically the Bank uses such times to implement changes to policy. The Bank said it had little reason to change its broad assessment of economic conditions but did state that the downside risks for the economy probably diminished.

The Canadian dollar is the stand out performer this morning. Despite a marginally lower U.S. dollar index today and with a broad-brush higher reading for the dollar, the Canadian currency is the rare bird actually rallying against the greenback today and currently buys 90.66 American cents. Although crude oil prices are running into the same resistance as are equity prices, the Canadian unit is responding to a stronger than expected retail sales reading for May. Sales rose 1.2% instead of the predicted 0.5%. On Thursday the Bank of Canada releases its monetary report and investors seem to be predicting that the Bank will continue its recent sanguine mood towards its dollar's strength. Its recent meeting minutes revealed a sense of surprise that the recovery was stronger than it had expected, which eases the burden of an appreciating currency. The dollar may fall if the central bank attempts to undermine incentive to buy.