The euro appreciated vis-à-vis the U.S. dollar today as the single currency tested offers around the US$ 1.4170 level and… … was supported around the $1.4095 level.

Today’s intraday high was just below the 61.8% retracement of the move from $1.4280 to $1.4015. The common currency moved higher even though yesterday’s Federal Open Market Committee meeting minutes were not as dovish as expected. In their most recent policy meeting at which Fed officials reduced the federal funds target rate by 25bps, officials concluded “”Future actions would depend on how economic prospects were affected by evolving market developments and by other factors.” The FOMC minutes made it clear the Fed is uncertain about the course of additional monetary easing and is clearly in a data-dependent mode. The FOMC next convenes on 30-31 October and the fed funds futures market is currently pricing in about a 36% chance the Fed will cut rates this month. San Francisco Fed President Yellen called the Fed’s last rate move “a forward-looking and preemptive approach.” Yellen also said it is premature to conclude the U.S. economy “dodged a bullet” and said a case could be made that the Fed’s policy bias could have been moved to neutral. St. Louis Fed President Poole optimistically noted last Friday’s non-farm payrolls report “does not suggest that the downside risk is occurring.” In eurozone news, Eurogroup president Juncker said the euro’s “historically high” levels may result in slower eurozone growth next year. Ecofin officials have shifted most of their concern to the yuan from their concern with the U.S. dollar. European Union officials are likely to visit China ahead of the China-E.U. Summit on 28 November in Lisbon. European Central Bank member Draghi conceded concerted intervention to weaken the euro “isn’t easy.” Euro bids are cited around the US$ 1.4120 level.

¥/ CNY

The yen depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥117.50 level and was supported around the ¥117.05 level. The yen has steadily decreased over recent trading sessions as traders’ risk aversion has decreased and short yen carry trades have resumed. Dealers expect Bank of Japan’s Policy Board to keep the overnight call rate unchanged at +0.50% when its decision is released overnight and most market participants believe the BoJ may not shift policy before the end of the current fiscal year in March 2008. Any indication, however, that more than one Policy Board member voted for higher interest rates could see some unwinding of the short yen carry trade as traders would conclude the central bank is closer to raising rates than previously thought. The Nikkei 225 stock index climbed 0.10% to close at ¥17,177.89. Dollar bids are cited around the ¥116.40/ ¥115.65 levels. The euro moved higher vis-à-vis the yen as the single currency tested offers around the ¥166.25 level and was supported around the ¥165.10 level. The British pound and Swiss franc gained ground vis-à-vis the yen as the crosses tested offers around the ¥240.35 and ¥99.40 levels, respectively. The Chinese yuan appreciated vis-à-vis the U.S. dollar as the greenback closed at CNY 7.5115 in the over-the-counter market, down from CNY 7.5170. Data released in China saw Q3 business confidence fall slightly to 143.0. Deutsche Bank foresees Chinese inflation becoming stable in coming months and S&P estimates 2007 GDP will print between 11% and 11.5%.

₤

The British pound appreciated vis-à-vis the U.S. dollar today as cable tested offers around the US$ 2.0475 level and was supported around the $2.0365 level. The pair is within striking distance of its high over the past two weeks and this week’s intraweek low has been right around the 61.8% retracement of the move from $2.0655 to $1.9650. Bank of England Governor King was relatively hawkish in comments made last night where he indicated the central bank would not reduce borrowing costs to make it easier for the financial sector despite ongoing liquidity problems. King also emphasized the BoE will continue to monitor inflation risks. Chancellor Darling yesterday issued a somewhat dovish pre-Budget report in which economic growth for 2008 was downgraded and borrowing is to be increased. Darling also said G7 officials should focus on trade and structural issues rather than exchange rates. The U.K. government now sees 2008 economic growth between 2.0% and 2.5%. Cable bids are cited around the US$ 2.0270 level. The euro moved higher vis-à-vis the British pound as the single currency tested offers around the ₤0.6940 level and was supported around the ₤0.6905 level.

CHF

The Swiss appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the CHF 1.1785 level and was capped around the CHF 1.1840 level. Technically, today’s intraday low was right around the 38.2% retracement of the move from CHF 1.1620 to CHF 1.1895. Dollar offers are cited around the CHF 1.1885/ 1.1945 levels. The euro and British pound moved higher vis-à-vis the Swiss franc as the crosses tested offers around the CHF 1.6725 and CHF 2.4205 levels, respectively.

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