The U.S. Dollar had a somewhat volatile day in light trading. The Dollar opened higher because of the overnight sell-off in the Chinese equity markets. Traders became risk averse overnight and decided to shun higher risk assets for the safety of the lower-yielding Dollar and Yen.

After a better than expected Chicago manufacturing report, the Dollar reversed course and weakened. Earlier losses in the September British Pound and September Euro were erased by mid-session. The September Canadian Dollar remained under pressure all day because of lower energy and equity prices as well as the lower than expected Canadian GDP Report.

The Japanese Yen traded higher all day in keeping with its strong trend. The Yen received a boost after a decisive victory by the country's opposition party during an election over the weekend. Japanese shares dropped following the election and on the weakness in China. These events sent risk adverse Japanese investors scurrying for protection. The repatriation helped support the Yen against higher risk assets.

Stronger than expected Japanese manufacturing activity also helped boost the Yen in addition to better industrial output in July.

The British Pound traded sideways to higher in a lifeless trade. The news that U.K. home prices rose for the first time in two years had very little effect on direction despite being another sign that the economy is mounting a recovery. Trading was thin because of a U.K. holiday.

Weaker equity markets in Asia, Europe and the U.S. overnight helped to make traders more risk averse, thereby leading to early selling pressure on the Euro. Losses were limited because of the news that European consumer prices dropped less than economists forecast in August. This news probably solidified the thought that the European Central Bank would not consider applying additional stimulus to the economy.

Higher yielding currencies like the New Zealand and Australian Dollars flip-flopped after a lower opening on thin trading. Traders had anticipated a further decline in U.S. equity prices on the opening. When the weakness in the U.S. markets faltered, investors quickly bought back the Aussie and the Kiwi. The direction of the equity markets will dictate the movement in these two pairs.