EURO

The euro slumped vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.4445 level and was capped around the $1.4525 level.  Technically, today’s intraday high was just shy of a new lifetime high for the common currency.  The big issue in front of traders today remains fallout from this summer’s sub-prime market turmoil in the U.S.  Citigroup chairman Charles Prince resigned this week as Citigroup was preparing to announce a write-down of US$ 8-11 billion in credit losses.  This follows Stanley O’Neal’s departure from investment banking giant Merrill Lynch last week.  Traders are concerned that more U.S. financial institutions could announce large write-downs in the near future.  Federal Reserve Governor Mishkin reported “The Fed's job is to limit damage to the economy. Policies to achieve this goal are designed to help Main Street and not to bail out Wall Street.  But this does not mean that market participants who have been overly optimistic about their assessment of risk don't pay a high price for their mistakes.” With more financial institutions announcing large write-downs, the chances of another FOMC easing at the December or January meetings will likely increase.  Data released in the U.S. today saw the October ISM non-manufacturing business index climb to 55.8.  Traders await testimony from Federal Reserve Chairman Bernanke on Thursday.  Euro bids are cited around the US$ 1.4385 level.

¥/CNY

The yen depreciated gained ground vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥114.00 figure and was capped around the ¥114.80 level.  Technically, today’s intraday high was right around the 61.8% retracement of the move from ¥109.00 to ¥124.15. Minutes from BoJ’s September Policy Board meeting suggested interest rates should be gradually raised “in accordance with improvements in the economic and price situation.” BoJ boss Fukui reiterated “If there is a surge in financial or economic activity triggered by overly optimistic assumptions about future funding costs, the foreign exchange rate or asset prices, this could distort the distribution of resources, create wild swings in the economy and prevent any sustained recovery.”  Fukui’s remarks do little to discourage additional short yen carry trades.  MoF’s Shinohara suggested the financial markets should welcome the U.S.’s dollar’s recent weakness so that it helps to reduce global trade imbalances.  The Nikkei 225 stock index lost 1.50% to close at ¥16,268.92.  Dollar bids are cited around the ¥113.85 level.  The euro came off vis-à-vis the yen as the single currency tested bids around the ¥164.95 level and was capped around the ¥166.60 level.  The British pound and Swiss franc weakened vis-à-vis the yen as the crosses tested bids around the ¥237.10 and ¥98.80 levels, respectively.  The Chinese yuan appreciated marginally vis-à-vis the U.S. dollar as the greenback closed at CNY 7.4551 in the over-the-counter market, down from CNY 7.4558.  PBoC reported it will continue to raise fuel prices to counter economic distortions and Goldman Sachs estimates Chinese inflation may exceed 7% in October and November.  Most traders believe PBoC will tighten monetary policy at least one more time this year.

₤

The British pound weakened vis-à-vis the U.S. dollar today as cable tested bids around the US$ 2.0780 level and was capped around the $2.0890 level.  Cable came within a few pips of establishing a new multi-decade high.  Data released in the U.K. today saw the October PMI services survey decline to 53.1, the lowest level in more than four years, from 56.7 in September.  These data suggest Q3 economic data may print lower-than-expected. Other data released today saw IRS private sector pay up 3.4% y/y as of the end of August.  Traders await the release of the BRC retail sales report tomorrow.  Additionally, September manufacturing output fell 0.6% m/m, down from a +0.5% increase in August. Most traders believe Bank of England’s Monetary Policy Committee will keep the repo rate unchanged on Thursday following some comments last week that we’re more hawkish-than-expected.  Cable bids are cited around the US$ 2.0740 level.  The euro moved higher vis-à-vis the British pound as the single currency tested options around the ₤0.6965 level and was supported around the ₤0.6935 level. 

CHF

The Swiss franc appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the CHF 1.1510 level and was capped around the CHF 1.1555 level.  The pair moved to a multi-year low on Friday and consolidated some of those losses today.  The Swiss October unemployment rate will be released on Thursday. U.S. dollar offers are cited around the CHF 1.1645 level. The euro and British pound came off vis-à-vis the Swiss franc as the crosses tested bids around the CHF 1.6670 and CHF 2.3935 levels, respectively.