The euro appreciated vis-a-vis the U.S. dollar last week as the single currency tested offers around the $1.4750 level and was supported around the $1.4445 level. The pair gained about 170 pips last week. The resignation of Citigroup chief Prince and $11 billion write-down called into question the extent of the U.S. subprime fallout. Fed Governor Mishkin said the Fed’s role isn’t to bail out Wall Street but to help Main Street. Bernanke said rising oil prices are risking inflation and the Fed would act “as needed” but warned the economy could decelerate in Q4 and H1 2008. Fed funds futures are pricing about a 90% chance the FOMC will ease next month and about a 75% chance the FOMC will ease in January. Paulson reiterated the U.S.’s strong dollar mantra.

Eurogroup’s Juncker was complacent with the euro and talked up the U.S.’s strong dollar policy. France’s Sarkozy warned currency “disarray” could lead to an “economic war.” Germany’s Five Wise Men see 2008 GDP growth slowing to 1.9%. The ECB kept its refinancing rate unchanged at 4.00%. Trichet talked of “brutal and unwelcome” exchange rate moves while the EC said it is “obviously concerned” about oil and FX volatility. ECB’s Mersch said the ECB lacks an “exchange rate objective.”
Data released in the U.S. last week saw the October ISM non-manufacturing index climb to 55.8; Q3 productivity printed at 4.9%; Q3 unit labour costs fell 0.2% q/q and were up 4.3% y/y; September wholesale inventories were up 0.8% with sales up 1.3%; weekly initial jobless claims were off 13,000 to 317,000; the September trade deficit narrowed to –US$ 56.45 billion; October import prices rocketed 1.8% m/m and 9.6% y/y; and the preliminary University of Michigan consumer sentiment index
Data released in the eurozone last week saw German September manufacturing orders fall 2.5% m/m and climb 1.1% y/y; EMU-13 September PPI was up 0.4% m/m and 2.7% y/y; German October services PMI improved to 55.1; German September industrial output was up 0.3%; and German October wholesale prices were up 0.5% m/m and 4.7% y/y.

The yen appreciated vis-a-vis the U.S. dollar last week as the greenback tested bids around the ?110.50 level and was capped around the ?114.80 level. The pair lost about 415 pips last week. The Nikkei 225 stock index closed at ?15,583.42. Speculation mounted the BoJ will remain on hold. BoJ’s September Policy Board meeting minutes suggested rates should be increased “gradually.” BoJ’s Policy Board meets Monday and Tuesday and is not expected to change policy. MoF’s Shinohara said the U.S. dollar’s weakness may reduce global trade imbalances.

Data released in Japan last week saw the September index of leading economic indicators fall to 0 from 27.3 in August; the September coincident index weakened to 66.7; October bank lending was up 0.7%; the October money supply expanded 2.0%; October orders for industrial machinery rose 9.9% y/y; the October economy watcher’s index fell to 41.5; and September industrial output was off 1.4% m/m.

The Chinese yuan appreciated vis-a-vis the U.S. dollar last week as the greenback closed at CNY 7.4108 in the over-the-counter market, down from CNY 7.4558. PBoC is likely to tighten monetary policy further this year. Goldman Sachs sees Chinese inflation above 7% in Q4. PBoC’s Zhou noted monetary policy must focus on “growth, employment, price stability, and a balance of international payments.” China’s Cheng Siwei said China should diversify its FX reserves holdings by “buying more strong currencies.” PBoC sees 2007 GDP growth up more than 11% with CPI up 4.5%. PBoC’s Yi Gang said “further observation is needed” before another rate hike.

Data released in China last week saw September consumer confidence fall to 97.0.

The British pound appreciated vis-a-vis the U.S. dollar last week as cable tested offers around the US$ 2.1160 level and was supported around the $2.0780 level. The pair gained about 10 pips last week. BoE’s King warned some risks remain in the banking sector. NIESR sees October GDP up 0.7% m/m. BoE MPC kept the repo rate unchanged at 4.00%.

Data released in the U.K. last week saw the October PMI services survey decline to 53.1; IRS private-sector pay awards were up 3.4% y/y at the end of August; September manufacturing output was off 0.6% m/m; BRC October like-for-like retail sales climbed 1.0%; BRC October annual shop price inflation accelerated to a 2007 high; Nationwide October consumer confidence weakened; the September leading indicator fell 0.1%; Halifax October house prices were off 0.5% m/m and up 8.9% y/y; and the September global trade deficit widened to ?7.8 billion.

The Swiss franc appreciated vis-a-vis the U.S. dollar last week as the greenback tested bids around the CHF 1.1185 level and was capped around the CHF 1.1555 level. The pair lost about 315 pips last week. OECD raised its Swiss growth forecast and sees another probable SNB rate hike. KOF sees Swiss growth decelerating in Q4 and more in Q1 2008.
Data released in Switzerland last week saw the October unemployment rate increase to 2.6% and the SECO October consumer sentiment index was unchanged at +15.

The Canadian dollar depreciated vis-a-vis the U.S. dollar last week as the greenback tested offers around the C$ 0.9430 level and was supported around the C$ 0.9055 level. The pair gained about 115 pips last week. BoC’s Jenkins said the loonie’s appreciation “appears to be stronger than historical experience would have suggested.” PM Harper said the loonie’s gains are “unprecedented” and require “reflection.”

Data released in Canada last week saw October Ivey PMI rise to 57.1 from 56.0 in September; September building permits were off 1.7% m/m; the September new house price index rose 0.3% m/m and 6.2% y/y; October housing starts fell 22%; and the September merchandise trade balance receded to C$ 4.3 billion.

The Australian dollar depreciated vis-a-vis the U.S. dollar last week as the Aussie tested bids around the US$ 0.9100 figure and was capped around the US$ 0.9400 figure. The pair lost about 120 pips last week. PM Howard is seeking re-election against an economic environment with higher interest rates. RBA lifted its cash rate target by 25bps to 6.75% as expected. RBA’s monetary policy statement will be released on Monday. The markets are pricing in about a one-third chance the RBA will tighten in December.

Data released in Australia last week saw October TD Securities inflation accelerate to +0.3% m/m and 3.3% y/y; the AIG October performance of services index fell to 53.2; D&B’s Q1 2008 national business expectations survey worsened; ANZ October Australian job advertisements rose 2.7% m/m; the Q3 house price index expanded +3.5% q/q; September housing finance was off 2.4%; the November leading employment indicator fell to -0.115 from a revised -0.102 in October; October unemployment rose to 4.3%;