The euro depreciated vis-a-vis the U.S. dollar today as the single currency tested bids around the US$ 1.4060 level and was capped around the $1.4150 level. There are two primary reasons why the common currency is consolidating recent gains. First, traders are reassessing the likelihood of additional monetary easing from the Federal Open Market Committee following Friday’s stronger-than-expected September non-farm payrolls report. The federal funds futures market was pricing in more than a 70% change the Fed would reduce interest rates again at its 30-31 October policy-setting meeting but that expectation has fallen to below 60%. Many dealers now believe the worst of the credit and liquidity crisis is behind the markets while others believe the Fed will go on the offensive and reduce borrowing costs again. Second, there is a growing chorus of verbal intervention in the eurozone. Ecofin finance ministers are convening tonight in Luxembourg to discuss the euro’s relative strength ahead of the Group of Seven meeting in Washington later this month. European Central Bank President Trichet is also attending tonight’s meeting and has called for one unified voice regarding the euro. Trichet has also noted the U.S. stands behind its strong dollar policy. ECB member Liikanen hawkishly reported “We must ensure that inflation expectations remain anchored in line with price stability. This is essential for sustainable economic growth and favorable employment development.” German economy minister Glos spoke and said “The weak dollar generally worries us, especially if it should weaken further.” ECB member Bini Smaghi also spoke over the weekend and said “An exchange rate policy for the euro exists, and so does an institutional mechanism to enact it. However, to be effective, the impact on markets of monetary policy must be quick, sudden. To move, it's not necessary to wait for a G7 meeting.” Most traders do not believe a concerted multilateral intervention is in the works at these levels. Data released in Germany today saw August manufacturing orders rise 1.2% m/m. Euro bids are cited around the US$ 1.3995 level.

The yen depreciated vis-a-vis the U.S. dollar today as the greenback tested offers around the 117.60 level and was supported around the 116.95 level. Trading was subdued during Australasian dealing on account of a market holiday in Japan and liquidity will return to normal overnight. The September economy watchers’ survey will be released tomorrow night. Dealers continue to cite improving risk appetite among traders following Friday’s stronger-than-expected September non-farm payrolls data in the U.S. and this has led to a resurgence in the short yen carry trade. Dollar bids are cited around the 114.75 level. The euro came off vis-a-vis the yen as the single currency tested bids around the 165.10 level and was capped around the 165.75 level. The British pound moved higher vis-a-vis the yen as sterling tested offers around the ?239.70 level and was supported around the 238.55 level while the Swiss franc moved lower vis-a-vis the yen and tested bids around the ?99.05 level. The Chinese yuan depreciated marginally vis-a-vis the U.S. dollar as the greenback closed at CNY 7.5062 in the over-the-counter market, up from CNY 7.5061. Data released in China today saw retail sales during the week-long National Day holiday reach CNY 350 billion. Also, the CFLP September manufacturing PMI index rallied to 56.1 from 54 in August.

The British pound moved lower vis-a-vis the U.S. dollar today as cable tested bids around the US$ 2.0355 level and was capped around the $2.0425 level. Technically, today’s intraday low was right around the 23.6% retracement of the move from $1.9880 to $2.0495. Data released in the U.K. today saw September input prices climb 3.2% m/m – above forecasts – and were up 6.4% y/y. Core input prices were up 0.4% m/m and 3.3% y/y. In contrast, output prices were up 0.1% m/m and up 2.7% y/y, the largest decline since March. These data suggest factory gates are now passing on all of the inflation pressures they are experiencing to the consumer level. It was also reported that August manufacturing output was up 0.4% m/m and reached the highest index value in six years. Three-month sterling Libor traded at 6.24% today and the overnight rate rose to 5.85% from 5.82%. Cable bids are cited around the US$ 2.0270 level. The euro moved lower vis-a-vis the British pound as the single currency tested bids around the 0.6900 figure and was capped around the 0.6930 level.

The Swiss depreciated vis-a-vis the U.S. dollar today as the greenback tested offers around the CHF 1.1855 level and was supported around the CHF 1.1740 level. The pair extended gains from recent trading sessions and traders are eyeing the CHF 1.1885 level. Data released in Switzerland today saw September unemployment print at 2.5%, down from August’s level of 2.6%. Increasing risk appetite has kept the Swiss franc on the defensive. Dollar offers are cited around the CHF 1.1885/ 1.1945 levels. The euro and British pound gained ground vis-a-vis the Swiss franc as the crosses tested offers around the CHF 1.6685 and CHF 2.4150 levels, respectively.