The euro depreciated vis-a-vis the U.S. dollar last week as the single currency tested bids around the $1.4030 level and was capped around the $1.4060 level. The pair lost about 135 pips last week. Fed Chairman Bernanke said the U.S. housing correction has more room to run and warned that inflationary pressures are escalating. Fed’s Kohn said last month’s 50bps was the first approximation of what needed to be done and added it “will not be able to avert all of the weakness in the economy.” The German media reported the Fed has resisted calls from other countries for joint intervention.
ECB’s Trichet verbally intervened saying U.S. authorities still support a strong dollar. Eurogroup’s Juncker said the strong euro “worries us a lot.” Spain’s Vegara said the yen and yuan should bear more of the USD’s adjustment. Trichet noted money and credit growth remains “vigorous” and said inflation will remain above 2.0% until 2008 but dropped “accommodative.” The ECB kept its main refinancing rate unchanged.
Data released in the U.S. last week saw the September ISM manufacturing activity index weaken to 52.0 from 52.9; the prices paid index fell to 59.0 in September; U.S. Redbook retail sales were up +0.3% m/m; the September non-manufacturing ISM index fell to 54.8; the ADP National Employment Report noted 58,000 private-sector jobs were created in September from a revised 27,000 in August; August headline factory orders were off 3.3% with the ex-transportation component off 1.7% and the orders for non-defense capital goods ex-aircraft component off 0.5%; weekly initial jobless claims were up 16,000 to 317,000; continuing jobless claims were off 10,000 to 2.541 million; September non-farm payrolls saw 110,000 jobs created with a +91,000 upward revision to August’s tally; the September unemployment rate printed at 4.7%; and September average hourly earnings were up +0.4%.
Data released in the eurozone last week saw final September manufacturing PMI was at 53.2; German September manufacturing printed at 54.9; EMU-13 August unemployment printed at 6.9%; EMU-13 August PPI was up +0.1% m/m and 1.7% y/y; EMU-13 August retail sales were up +0.1% m/m and +1.0% y/y; the EMU-13 September services PMI survey fell back to 54.2 from 58.0 in August; and German August new orders for machinery and plant were up 14% y/y.

The yen depreciated vis-a-vis the U.S. dollar last week as the greenback tested offers around the ?117.30 level and was supported around the ?114.70 level. The pair gained about 220 pips last week. The Nikkei 225 stock index closed the week at ?16,785.69. BoJ’s Iwata reported “The impact of the US subprime mortgage problems on the Japanese financial system is limited at the moment. And our short-term financial markets are showing more stable movements compared with the US and European markets. Persistent drops in share prices and a continued high yen would have a negative impact on the economy going forward, and we should watch out for it.”
Data released in Japan last week saw the Q3 Tankan large manufacturers’ diffusion index print at +23; the Tankan all-industries combined capital expenditures plans improved to 4.9% from 3.1% in Q2; August average overall income rose +0.1% y/y; the September monetary base was up +0.7% y/y; the index of leading economic indicators fell to 30.0 from 72.7 in July; the August coincident index improved to 83.3 from 70.0 in July, and September foreign reserves climbed US$ 13.44 billion to US$ 945.60 billion.
The Chinese yuan depreciated vis-a-vis the U.S. dollar last week as the greenback closed at CNY 7.5061 in the over-the-counter market, up from CNY 7.5036. China launched its state-owned foreign reserves investment company and it will manage US$ 200 billion.

The British pound depreciated vis-a-vis the U.S. dollar last week as cable tested bids around the US$ 2.0275 level and was capped around the $2.0495 level. The pair lost about 45 pips last week. U.K. banks are said to be bidding on liquidity from the ECB instead of the BoE. BoE’s MPC kept the repo rate unchanged at 5.75%.
Data released in the U.K. last week saw final M4 money supply growth of an annualized 13.5%; August consumer lending fell to ?9.5 billion; Hometrack September house prices were unchanged m/m and up 5.0% y/y; the September CIPS manufacturing PMI survey fell back to 55.1; BoE Q2 housing equity withdrawal fell back to ?10.0 billion; BoE mortgage approvals fell to 109,000 in August; BoE net mortgage lending fell to ?8.5 billion; September construction PMI fell to 60.3 from 64.8 in August; September services PMI fell to 56.7; the BRC September shop price index was up +0.2% m/m and +0.4% y/y; Nationwide Q3 annual house price growth was at 9.3%; Halifax September house prices were off 0.6% m/m and up 10.7% y/y; August construction orders were off 8.0% q/q; and median pay settlements were up 3.2% in the three months to September.

The Swiss franc depreciated vis-a-vis the U.S. dollar last week as the greenback tested offers around the CHF 1.1855 level and was supported around the CHF 1.1620 level. The pair gained about 140 pips last week. Credit Suisse lifted its 2007 GDP forecast to 2.5% from 2.2%. The Swiss government raised its 2007 GDP forecast to 2.6% from 2.3%.
Data released in Switzerland last week saw the September PMI survey fall to 57.6 from 65.1 in August and September CPI was up +0.1% m/m and +0.7% y/y.

The Canadian dollar appreciated vis-a-vis the U.S. dollar last week as the greenback tested bids around the C$ 0.9805 level and was capped around the C$ 1.0015 level. The pair lost about 120 pips last week. The European Commission cleared Anglo-Australian mining company Rio Tinto to purchase Canada’s Alcan for C$ 38.1 billion. Mark Carney was appointed the next Governor of Bank of Canada.
Data released in Canada last week saw the August Purchasing Managers Index fall to 56.0 in September; August building permits were up 1.4%; the September unemployment rate fell below 6% for the first time since 1974 at 5.9%; September employment was up 51,000; and September average employee earnings were up 4.2% y/y.

The Australian dollar appreciated vis-a-vis the U.S. dollar last week as the Aussie tested offers around the US$ 0.9005 level and was supported around the US$ 0.8795 level. The pair gained about 95 pips last week. Treasury chief Costello said the Aussie’s record high has positive and negative effects.
Data released last saw September manufacturing PMI fall 1.7 points to 50.7; August retail sales were up +0.7% m/m; the August trade deficit expanded to ­–A$ 1.61 billion; the September performance of services index was up 4.8 points m/m; and August building approvals were off 1.7% m/m.