US Dollar
The foreign exchange markets have been extremely quiet today with the dollar giving back a nominal portion of yesterdayâ�,��"�s gains.  Overall, dollar strength remains dominant.  With a light economic calendar, consolidation continues to be the main theme amongst the majors.  The markets are still jittery about the escalating tensions with North Korea, which is the main geopolitical risk at the moment.  In the latest news, the US has announced that in reaction to North Koreaâ�,��"�s threat, they have pushed their interceptor missile defense system from the testing to operational phase.  Although slightly encouraging since it gives North Korea a good reason to reconsider any plans of launching their missile, if they do decide to do launch anyway and the US intercepts it, tensions between the two countries could escalate even further, which would be bad for the US dollar.  Meanwhile, after yesterdayâ�,��"�s horrid National Association of Home Builders sentiment index, todayâ�,��"�s stronger housing starts were certainly a relief.  However before jumping the gun and becoming too excited, the rebound comes off of a 13 month low and was induced by incentives as well as backlogs.  Furthermore, building permits, which is a better indication of the future of the housing market fell 2.1 percent.  We are still looking at numbers that support cooling versus crashing * which for the time being still lets the Federal Reserve focus on inflation.  The market continues to price in a quarter point rate hike next week and a more than 50 percent chance of another rate hike at the end of August.  With nothing significant on tomorrowâ�,��"�s US economic calendar, we will probably be looking at more thin range trading.  Moving up north, Canada posted very strong inflation numbers this morning, with both the headline and core prices rising 0.5 percent.  This has capped gains in USD/CAD and raises the possibility of another interest rate hike by the Bank of Canada.  It also makes tomorrowâ�,��"�s speech by Governor Dodge even more important in determining the next direction for the Loonie.

Euro
Conflicting economic data from the Eurozone leads to unchanged price action in the Euro against the US dollar.  German producer prices were slightly softer, rising by only 0.1 percent, compared to the marketâ�,��"�s 0.3 percent forecast.  In contrast, Italian data was exceptionally strong.  The countryâ�,��"�s unemployment rate slipped from 7.6 percent to 7.4 percent in the first quarter while industrial orders leaped 6.8 percent in the month of April.  Even industrial sales fell a less than expected 1.9 percent.  Things appear to be certainly improving in Italy and it comes at a good time when the blockbuster numbers that we are use to seeing from Germany fail to meet the bar.  Meanwhile the Euro is holding steady above 1.2500.  Although it still appears weak, significant losses should be limited in the currency pair since the European Central bank still plans on raising interest rates.  ECB President Trichet will be speaking in Brussels tomorrow and we will be listening intently for any comments on monetary policy.  Their next meeting that comes with a press conference willl not be until August, so they have plenty of time to consider their options.

British Pound
The British pound ended the day unchanged against the US dollar.  The UK data that was released this morning was mixed with public sector finances increasing from -1.4 billion to 7.4 billion and net borrowing rising from 0.2 billion to 10 billion.  These higher numbers reflect a worsening fiscal condition while money supply growth slowed from 1.3 percent to a less than expected 0.6 percent.  The positive news for the day was that consumer credit and mortgage lending improved with lending hitting a 2 year high.  Overall, the numbers suggest that inflation fears may still be premature while the housing market continues to show signs of stabilization.  Meanwhile, the Bank of England is set to release the minutes from the most recent monetary policy meeting tomorrow at which they left interest rates unchanged once again.  Recent economic data gives them no reason to shift away from their neutral stance.  However, this is the first meeting for new MPC member Blanchflower, who replaced Nickell, a member that was typically known to favor looser monetary policies.  Of particular note will be how the Blanchflower voted.  If he is dovish as well, then he fits Nickellâ�,��"�s shoes well, but if he is hawkish, then the dynamic within the monetary policy committee could shift ever so slightly. 

Japanese Yen
The Japanese Yen was the dayâ�,��"�s biggest mover as the currency strengthened against all of the other majors.  The key catalyst for todayâ�,��"�s rally was comments by Bank of Japan Governor Fukui who said that â�,��"monetary policy decisions should be made early and changes should be made in small increments.â�,�  The market interpreted these comments to mean that the central bank may be considering raising interest rates as early as June or August.  However, perhaps reacting to the yenâ�,��"�s rally, Fukui came on the wires later on to clarify his comments by saying that he did â�,��"not mean to sayâ�,� the central bank â�,��"would act earlier than market expectations.â�,�  Remember, before his comments today, traders were expecting a rate hike no earlier than September.  We still believe that with Koizumi stepping down in September, the Bank of Japan may opt to postpone any major changes to monetary policy to the fourth quarter.

Kathy Lien is the Chief Currency Strategist at FXCM.