US Dollar
It was not until London traders went home that dollar bulls were able to take the greenback higher.  With the soft Beige Book report continuing to resonate in the market, the dollar remained relatively subdued after the stronger durable goods and jobless claims report.  However, it is hard to find any faults with both pieces of data as orders excluding transportation, which strips out the big increase in aircraft orders was still strong.  We are also seeing companies use their excess cash to purchase newer energy efficient equipment.  Stronger activity in the private sector is sure to be a factor that the Fed considers.  Meanwhile jobless claims continue to remain at very stimulative levels, which should keep the forecasts for next Friday's non-farm payrolls very high.  However as we have all seen, jobless claims has had a weak correlation with payrolls, so I would not put too much weight on the data.  In terms of housing, new homes sale purchases fell by 3 percent to 1.131 million last month from a downwardly revised 1.166 million in May.  The number of houses that are available for sale also hit a record high of 566k last month.  New homes sales, which tends to be a timelier indicator of the housing market than existing home sales is confirming the slowdown that many unofficial surveys have been reporting.  If you recall, on Tuesday, we had said that even though existing home sales was strong, reports from regional surveys in California, Massachusetts and Florida suggests otherwise.  Overall today's releases keeps the outlook for the Fed's rate decision murky.  Tomorrow we are expecting the advance release of second quarter GDP.  Growth is expected to slow to 3.0 percent from 5.6 percent in the first quarter.  In addition to GDP, we will have our eyes on the equally important core personal consumption expenditures data.  This inflation measure could shed more light on the conundrum of what the Federal Reserve will do with interest rates in August. 

Euro
Earlier gains in the Euro were erased after stronger US economic data.  The Euro actually ran up to a high of 1.2773 before reversing lower.  This morning's economic data continues to support the case for the European Central Bank to raise interest rates on August 3rd.  Consumer confidence in Germany as measured by the Gfk survey increased from an upwardly revised 8.0 to 8.6.  The number of employed people in France also fell by 25k, bringing the unemployment rate down to 9.0 percent from 9.1 percent.  In Italy, the confidence of retailers shrank, but hourly wages increased by a more than expected 0.3 percent in the month of June.  Overall, since the last ECB meeting, economic data has continued to improve and shown the strength of the Eurozone economy over the past month.  Coupled with the hawkish comments from ECB President Trichet following the last meeting, there is no reason to expect anything other than another rate hike. However, the key will not be the actual interest rate move itself, since it has already been priced into the market for the most part, but it instead will be what Trichet signals at the press conference following the monetary policy decision.  Looking ahead, even though inflation pressures are still prevalent, there are many risks to the Eurozone's ability to continue its pace of growth.  Much of the stimulus was from the World Cup and with that now behind us, the Eurozone has to generate its own growth.  We also mentioned yesterday that the VAT tax will soon be increased from 16 to 19 percent.  Once this comes through, consumer spending could very well suffer as a result. 
 
British Pound
The British pound was mildly stronger this morning thanks to comments from U.K. Treasury Minister Balls.  He raised the concern about increasing inflation risks, and cited that the monetary policy committee is watching the developments very closely.  This was certainly encouraging for sterling bulls as the market has been quietly pricing in an end of the year rate hike.  Balls has been predicted to take over Brown's job as Chancellor if he becomes Prime Minister.  As his long-time Chief Economic Adviser, Balls is a solid pick.  Also supporting today's rise in the pound was stronger mortgage approval numbers.  Originally expected to grow by only 76k, approvals actually increased by 86.1k in June.  The housing market continues to show signs of stabilization and this supports the case for an end of the year rate hike by the Bank of England. 

Japanese Yen
The Japanese Yen was the best performing currency of the day as it recorded gains against all of the majors. Aside from more China related news, there was no economic data out of Japan.  China's economy continues to perform strongly, enough so that Standard and Poor's upgraded their credit rating to A from A minus with a stable outlook.  China has been aggressively trying to reign in their double digit growth, which is a problem many other countries only wished they had.  With their previous reforms yielding little immediate impact, China may have no other option than to allow their currency to increase more in value.  In fact, last night, the People's Bank of China announced that they can afford to let the Yuan rise further.  Yesterday, the Chinese state run think tank forecasted a 5 percent appreciation in the currency per annum.  As we have long said, further appreciation in the Yuan is good for the Yen.  Shifting over to politics, it has been announced that when Prime Minister Koizumi steps down in September, Finance Minister Tanigaki will stand in his place temporarily while running for the post.  An advocate for an increase in the consumption tax, if Tanigaki wins, he may not be seen as very positive for the economy.

Kathy Lien is the Chief Currency Strategist at FXCM.