USD The dollar rose on Wednesday as continued concerns and uncertainty over the state of the eurozone weighed on risk appetite. As the U.S. session progressed the dollar weakened as Fed Chairman Bernanke gave his second biennial speech leaving the door open to more QE, saying the Fed still has the capacity to purchase more bonds. Overall, though, his tone remained in line with yesterday's "stimulus-as-and-when" stance. On the data front, Housing Starts in June rose by 760k, which beat expectations of a rise to 745k from a previous print of 711k. Building Permits, however, fell by 29k to 755k when a less acute fall to 765k had been expected. The release of the data coincided with a slight weakening of the dollar. This translated into an expectation-beating 6.9% rise in Housing Starts mom and a -3.7% fall in Housing Permits. EUR The euro weakened on more bad news and negative commentary after the IMF issued a warning that the euro zone was in “critical danger� and the ECB should introduce more stimulus to help stave off collapse. There was further uncertainty as an E.U official questioned whether Germany's Constitutional Court would agree to the ESM and Angela Merkel said the “European Project� required more work to succeed. Wrangling amongst Greek politicians over spending cuts further destabilized the outlook as the coalition could not agree or find the full 11.5bn of cuts required. On the data front it was a light day with eurozone Construction Output (seasonally adjusted) mom in May rising to 0.1% from a -3.7% print in April; year-on-year it fell -8.4% from – 6.3% previously. Italian Current Account fell slightly to a deficit of -1199m vs -1138m previously. Tonight Italy's Chamber of Deputies votes to approve the ESM and the Fiscal Pact. GBP The pound traded mixed on Wednesday after a marked fall in unemployment helped boost sentiment despite continued fears about the crisis in the eurozone. The BOE minutes for July showed that members voted unanimously to keep rates unchanged but voted 7-2 to increase monetary easing by 50bn. Ben Broadbent and Spencer Dale were the two dissenting voices. According to the committee the case for more stimulus was now “compelling and stronger than at the previous meeting,� as there were “increasing signs that the threat of a disorderly resolution to the financial tensions in the eurozone were affecting growth at home.� Inflation had fallen due to falling commodity prices and further stimulus might contribute achievement of the 2% inflation target. Jobless claims increased by 6.1k which although less than the previous 6.9k rise was still not in line with the 5.0k expected fall. Nevertheless the Unemployment Rate unexpectedly fell a basis point to 8.1% and Employment Change (3m3m) showed a rise of 181k vs 120k expected. Average Weekly Earnings Ex Bonus remained at 1.8% whilst the figure including bonus increased a basis point to 1.5%. JPY The yen strengthened on Wednesday after increased uncertainty in Europe led to a further flight to safety. The main data release was the BoJ minutes published overnight. The content was not viewed very differently from the central bank's previous stance and, therefore, had little effect on the yen. Nevertheless, the BoJ document highlighted continued risk to Japan of a slowdown in the global economy and unresolved problems in the eurozone. It expected the Japanese economy to return to moderate growth as the global economy emerged from its "deceleration" phase. It said it would continue to use a host of economic strategies to overcome deflation including QE. Other data showed a continued fall in Machine Tool Orders yoy in June of -15.5% while Tokyo Condominium Sales rose yoy by 16.4% vs -14.9% previous.

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