The euro appreciated vis-a-vis the U.S. dollar today as the single currency tested offers around the US$ 1.4245 level and was supported around the $1.4160 level. Traders are positioning themselves ahead of Friday’s G7 meeting of central bankers and finance ministers in Washington, D.C. Most dealers believe G7 officials will mention exchange rates in their communique and will focus on the yuan rather than the weakness of the U.S. dollar. Traders also await a speech from Fed Chairman Bernanke tonight to see if he yields any clues about the possible outcome of the FOMC meeting on 30-31 October. ECB President Trichet today reiterated his call for “verbal discipline” regarding exchange rates and again warned “there are two-way risks” in the FX markets. Data released in the U.S. today saw the October Empire State manufacturing index nearly double to 28.75 in September. Traders also await Wednesday’s September consumer price inflation data to see if retail-level price pressures continue to abate in the U.S. economy. Euro bids are cited around the US$ 1.4120 level.

The yen appreciated vis-a-vis the U.S. dollar today as the greenback tested bids around the 117.40 level and was capped around the 117.90 level. Technically, today’s intraday high was right around the 50% retracement of the move from 124.15 to 111.60. A quarterly Bank of Japan report released today saw three regions of Japan lower their economic assessment, the largest number to downgrade their views of the economy since April 2005. BoJ Governor Fukui reiterated the central bank is closely watching the effects of the subprime mortgage crisis on the Japanese economy and volatility in the international financial markets. Data released in Japan today saw August industrial output rise 3.5% m/m. The Nikkei 225 stock index climbed 0.16% to close at 17,358.15. Dollar bids are cited around the ?116.40/ 115.65 levels. The euro gained ground vis-a-vis the yen as the single currency tested offers around the ?167.75 level and was supported around the 166.40 level. The British pound and Swiss franc moved higher vis-a-vis the yen as the crosses tested offers around the 240.65 and ?99.95 levels, respectively. The Chinese yuan depreciated sharply vis-a-vis the U.S. dollar as the greenback closed at CNY 7.5284 in the over-the-counter market, up from CNY 7.5110. Chinese President Hu reported the yuan will “gradually” be made fully convertible and this pushed the yuan lower. The Chinese Communist Party’s 17th Congress opened today and traders are closely monitoring proceedings for any news related to the yuan or a change of leadership at People’s Bank of China. The government also reported Beijing’s GDP was up 12.1% in H1 2007. PBOC lifted its reserve bank requirement 0.5% to 13.0% overnight, its eighth monetary tightening this year.

The British moved higher vis-a-vis the U.S. dollar today as cable tested offers around the US$ 2.0435 level and was supported around the $2.0320 level. Technically, today’s intraday high was right around the 76.4% retracement of the move from $2.0495 to $2.0245. Data released in the U.K. today saw Rightmove October asking house prices surge 5.0% while the government reported U.K. August annual house price inflation eased to 11.4% from 12.4% in July. BRC reported that September retail sales in London were at their weakest level since May. Cable bids are cited around the $2.0350/ 2.0270 levels. The euro came off vis-a-vis the British pound as the single currency tested bids around the ?0.6955 level and was capped around the 0.6985 level.

The Swiss franc appreciated vis-a-vis the U.S. dollar today as the greenback tested bids around the CHF 1.1775 level and was capped around the CHF 1.1860 level. Technically, the pair continues to orbit the CHF 1.1790 level, 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 came off vis-a-vis the Swiss franc as the crosses tested bids around the CHF 1.6765 and CHF 2.4000 levels, respectively.

The Australian dollar moved lower vis-a-vis the U.S. dollar today as the Aussie tested bids around the US$ 0.9000 figure and was capped around the $0.9070 level. Data released in Australia overnight saw August personal finance off 3.2% m/m. The Australian government lifted its economic growth forecast to 4.25% for the year to June 2008 from its estimate of 3.75% made in May. Australian dollar bids are cited around the US$ 0.8950 level. The New Zealand dollar moved sharply lower vis-a-vis the U.S. dollar today as the kiwi tested bids around the US$ 0.7645 level and was capped around the $0.7785 level. Data released in New Zealand today saw Q3 inflation print at a lower-than-expected 0.5%, taking the annual rate lower to 1.8%. New Zealand dollar bids are cited around the US$ 0.7535 level.

The Canadian ceded recent gains vis-a-vis the U.S. dollar today as the greenback tested offers around the C$ 0.9750 level and was supported around the C$ 0.9705 level. Data released in Canada today saw September leading indicators rise to 0.4% from 0.3% one year ago. Most traders expect Bank of Canada will keep interest rates unchanged tomorrow. BoC’s October monthly Monetary Policy Report will be released on Thursday. U.S. dollar offers are cited around the C$ 0.9860 level.