EURO

The euro came off vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.4775 level and was capped around the $1.4855 level.  The common currency established a fresh lifetime high before ceding some intraday gains.  Sentiment in the U.S. dollar eroded further after the release of yesterday’s FOMC meeting minutes from the end of October.  The Fed’s decision to reduce the federal funds target rate by 25bps was a “close call” but officials saw additional economic weakness in the future. Moreover, the Fed released updated GDP and inflation forecasts and scaled back expectations for 2008 GDP growth to 1.80% - 2.50% and core PCE inflation to 1.7% to 1.9%.  The reduction in growth expectations cemented traders’ belief the FOMC is likely to ease monetary policy further next month.  Many traders believe the federal funds target rate may be back at 4.00% at the conclusion of the FOMC’s two-day policy meeting in late January.  Data released in the U.S. today saw weekly initial jobless claims fall 11,000 to 333,000 while continuing jobless claims fell slightly to 2.566 million.  Also, the final November University of Michigan consumer sentiment index improved to 76.1 from the preliminary reading of 75.0 and October leading indicators fell 0.5%.  Ongoing chatter that the Gulf Cooperation Council – a group of six oil-rich Middle Eastern countries – could drop their pegs to the U.S. dollar is at the forefront of traders’ minds.  Euro bids are cited around the US$ 1.4575/ 1.4470 levels.


YEN / CNY

The yen appreciated sharply vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥108.25 level and was capped around the ¥110.00 figure.  The pair fell to its lowest level in a couple of years as risk aversion returned to the market.  The resurgence in the price of oil to near the psychologically-important US$ 100.00 figure added to the yen’s gains. Data released in Japan overnight saw the September all-industries index recede 1.6% while the October merchandise trade surplus rose 66.1% to ¥1.019 trillion. Trade minister Amari said an exchange rate around ¥110 should be appropriate for the greenback.  The Nikkei 225 stock index lost 2.46% to close at ¥14,837.66.  Dollar bids are cited around the ¥106.55 level.  The euro moved lower vis-à-vis the yen as the single currency tested bids around the ¥160.05 level and was capped around the ¥163.15 level.  The British pound and Swiss franc weakened vis-à-vis the yen as the crosses tested bids around the ¥222.40 and ¥97.85 levels, respectively.  The Chinese yuan firmed vis-à-vis the U.S. dollar as the greenback closed at CNY 7.4110 in the over-the-counter market, down from CNY 7.4218.  Bush administration officials will visit China next month to discuss the yuan and trade issues.


STERLING

The British pound fell vis-à-vis the U.S. dollar today as cable tested bids around the US$ 2.0525 level and was capped around the $2.0695 level.  Technically, today’s intraday low was right around the 50% retracement of the move from $1.9870 to $2.1160.  Sterling moved lower after minutes from Bank of England’s November Monetary Policy Committee meeting were released and evidenced a 7-to-2 vote in favour of keeping rates unchanged. MPC member Blanchflower and Deputy Governor Gieve voted for a rate cut.  Gieve is generally perceived to be a hawkish member of the MPC and his vote for a cut suggests there could be an increasing consensus on the MPC that borrowing costs need to come down.  Most traders believe the MPC will reduce interest rates in 2008, and possibly as early as next month.  Cable bids are cited around the US$ 2.0365 level.  The euro extended recent gains vis-à-vis the British pound as the single currency tested offers around the ₤0.7215 level and was supported around the ₤0.7165 level.


SWISS

The Swiss franc appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the CHF 1.1025 level and was capped around the CHF 1.1080 level.  The pair established a fresh multi-year low as risk aversion returned to the markets.  U.S. dollar offers are cited around the CHF 1.1355 level.  The euro and British pound weakened vis-à-vis the Swiss franc as the crosses tested bids around the CHF 1.6345 and CHF 2.2685 levels, respectively.