For the second straight day the U.S. dollar saw a mixed performance against the other G10 currencies, with it outperforming relative to the NOK, SEK, CAD, AUD and NZD, and underperforming versus the DKK, EUR, CHF and JPY, while it remained nearly unchanged against the GBP. So what do we make of this? If we remove the EUR from the conversation for the moment (and the DKK as well since it’s pegged to the Euro), it’s interesting to see that traders plowed into the typical ‘risk averse’ currencies (CHF JPY), with the USD and GBP essentially unchanged and then the commodity/high beta currencies taking it on the chin (NOK, SEK, CAD, AUD and NZD). Seems to me that currencies are telling the real story here, with risk aversion being the theme!

In the highly anticipated phone conversation between German Chancellor Merkel, French President Sarkozy and Greek Prime Minister Papandreou they stressed that it was essential to put into practice the decisions made by the EU leaders from the July summit, whereby Greece would enact strict austerity measures as a prerequisite to further payments under the agreed upon bailout package. Greece’s willingness to go along with this affirmed their commitment to the EU. In a French statement, they said that Merkel and Sarkozy are “convinced that the future of Greece is in the Euro-zone”. These comments boosted market confidence as witnessed by today’s intra-day rally in U.S. equities, which at one point saw the SP500 lower by over 10 points, to then rally above 1200 (nearly a 40pt gain), and to close higher by +15.81pts at 1188.68 on the day.

Elsewhere, Moody’s downgraded the long-term debt ratings of two of France’s largest banks overnight – Credit Agricole and Societe Generale, however this was largely priced in as rumors of a potential downgrade have been circling for the last few days (seems like another case of buy the rumor, sell the fact). Additionally, U.S. Treasury Secretary Geithner was on the horn earlier today as he stated “there is no chance that the major countries in Europe will let their institutions (financial) be at risk in the eyes of the market”, however he acknowledged that European officials are currently behind the curve in their response to the crisis, but added that Europe has the capacity to address these problems and concerns without the help of other nations.

Under the radar today was a few data announcements out of the US…Weekly Mortgage Applications was +6.3% vs. -4.9% a week ago, August PPI came out in line with expectations at 0.0% m/m and 6.5% y/y, and August Advance Retail Sales underwhelmed at 0.0% vs. consensus 0.2% and a negatively revised 0.3% prior.

On the data front for the upcoming Asia/Pacific session is the release of the RBNZ Interest rate announcement, New Zealand August Business PMI, Australian August New Motor Vehicle Sales and RBA Foreign Exchange Transactions and China’s August FDI.