The euro gave back some recent gains vis-à-vis the U.S. dollar today as the single currency tested bids around the… … US$ 1.4110 level and was capped around the $1.4160 level.

The common currency established another new lifetime high today before giving back some gains. Data released in the U.S. saw August durable goods orders off 4.9% with the ex-transportation component down 1.8%, worse-than-expected. Also, the core capital goods, non-defense and ex-aircraft reading was off 0.7% and these data suggest that business spending cooled considerably in Q3. Most economists expect Q3 GDP will be far below the 4.2% annualized GDP rate of Q2 on account of the turmoil caused by the credit markets. Philadelphia Fed President Plosser spoke last night and reported “The pace of economic activity is likely to be somewhat slower in the next few quarters than I expected earlier. A slower economy means that real interest rates must decline to bring about the appropriate adjustments to restore growth. In recognition of this, I believe last week's action to lower the fed funds rate target was appropriate.” Most traders believe the Federal Open Market Committee will take the federal funds target rate lower by another 25bps to 4.50% by the end of the year. The big question is whether the Fed will cut rates at the end of October or in December with most Fed-watchers believing the Fed will take a couple of extra months to evaluate the initial impact from its rate cut and business activity in Q3. If there is anecdotal evidence that the rate cut is helping the U.S. housing market recover, the Fed will likely make a move in December. In eurozone news, French finance minister Lagarde verbally intervened against the yuan today saying “Exchange rates should reflect economic fundamentals. In emerging economies with large and growing current account surpluses, especially China, it is desirable that their effective exchange rates move so that necessary adjustments will occur.” The dollar also got a little bit of a reprieve on comments from Saudi Arabia Monetary Agency Governor Al Sayari who reported the country has no plans to abandon the riyal’s peg to the U.S. dollar. Data released in Germany saw the GfK consumer climate index print at 6.8 in October from a downwardly revised 7.4 in September. Euro bids are cited around the US$ 1.4030 level.

¥/ CNY

The yen depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥115.75 level and was supported around the ¥114.55 level. Technically, today’s intraday low was right around the 23.6% retracement of the move from ¥124.15 to ¥111.60. Traders are eagerly awaiting Monday’s Bank of Japan quarterly tankan survey to evaluate sentiment among large manufacturers and non-manufactures. Global sentiment and confidence have been falling over the past several weeks as evidenced in key business and consumer surveys and any indication that Japanese companies are weathering the global liquidity crunch could boost the yen. Dealers also want to get a sense of capital expenditures budgeting for the coming quarters. Most market participants believe Bank of Japan will not lift the overnight call rate until early 2008 at which time it could hike by +25bps to +0.75%. Data released in Japan overnight saw the August trade surplus print at ¥743.24 billion, nearly quadruple its level from August 2006. The Nikkei 225 stock index climbed 0.21% to close at ¥16,435.74. Dollar bids are cited around the ¥114.55/ 112.55 levels. The euro moved higher vis-à-vis the yen as the single currency tested offers around the ¥163.40 level and was supported around the ¥162.10 level. The British pound and Swiss franc gained ground vis-à-vis the yen as the crosses tested offers around the ¥233.20 and ¥98.85 levels, respectively. In Chinese news, the yuan’s central parity rate vis-à-vis the U.S. dollar was set at CNY 7.5089, down from CNY 7.5135. Data released in China saw consumer confidence improve marginally this month.

₤

The British came off vis-à-vis the U.S. dollar today as cable tested bids around the US$ 2.0105 level and was capped around the $2.0215 level. Some buying interest in sterling was seen in the European session after a Bank of England auction of ₤10 billion in three-month liquidity failed to attract any bids, suggesting the scramble for interbank liquidity may be diminishing. Notably, the three-month sterling Libor fixing fell to 6.32% with the overnight fixing down to 5.66%. Many traders believe BoE will move to an easing bias in the near future and could reduce its repo rate target by 25bps by the end of the year. Data released in the U.K. today saw revised Q2 GDP upwardly revised to 3.1% from its original estimate of 3.0%. Cable bids are cited around the US$ 2.0090 level. The euro climbed higher vis-à-vis the British pound as the single currency tested offers around the ₤0.7025 level and was supported around the ₤0.6995 level.

CHF

The Swiss lost ground vis-à-vis the U.S. dollar today as the greenback tested offers around the CHF 1.1720 level and was supported around the CHF 1.1645 level. Data released in Switzerland today saw the September KOF economic barometer rise to 2.14 from 2.12 in August. U.S. dollar offers are cited around the CHF 1.1760 level. The euro and British pound gained ground vis-à-vis the Swiss franc as the crosses tested offers around the CHF 1.6545 and CHF 2.3635 levels, respectively.

A$/ NZ$

The Australian dollar gained marginal ground vis-à-vis the U.S. dollar today as the Aussie tested offers around the US$ 0.8760 level and was supported around the US$ 0.8710 level. The pair reached its highest level since 27 July. Data released in Australia overnight saw the September skilled vacancies index improve +0.1% m/m. Australian dollar bids are cited around the US$ 0.8585 level. The New Zealand dollar moved higher vis-à-vis the U.S. dollar as the kiwi tested offers around the US$ 0.7465 level and was supported around the $0.7400 figure. Data released in New Zealand overnight saw the August trade deficit balance print at –NZ$ 945 million. New Zealand dollar bids are cited around the US$ 0.7375 level.

C$

The Canadian dollar depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the US$ 1.0095 level and was supported around the $1.0020 level. Bank of Canada Governor Dodge spoke yesterday and acknowledged the loonie has moved far above the central bank’s forecast range and added the economy is operating further above its potential output level than was expected in July. The loonie’s level may result in no change in policy at the 16 October Bank of Canada interest rate meeting. The BoC kept its key overnight rate unchanged at 4.50% at its 5 September rate-setting meeting. U.S. dollar offers are cited around the C$ 1.0090 level.

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