The euro moved higher vis-a-vis the U.S. dollar today as the single currency tested offers around the US$ 1.4765 level and was supported around the $1.4635 level. Stops were reached above the $1.4740 level, representing the 23.6% retracement of the move from $1.4015 to $1.4965. The common currency gained some ground overnight after San Francisco Fed President Yellen was quoted as saying “It is far too early to tell if we are in for a sustained period of sluggish growth in consumption spending, but recent developments do raise the possibility as a serious risk to the outlook. Since the October FOMC meeting, financial conditions have deteriorated, and we have seen some unexpected softening in the economic data. For the next few quarters, there are signs that growth may come in somewhat lower than I had previously thought likely.” Most traders believe the FOMC will ease monetary policy further by at least another 25bps on 11 December, if not 50bps, and the fed funds futures market is also pricing in another rate cut at the end of January. The market is vacillating between one school of thought that suggests a rate cut will help the U.S. dollar and another school of thought that suggests a rate cut will dent confidence in the U.S. dollar as interest rate differentials are eroded. Confidence in the U.S. dollar is also on the defensive after the Gulf Cooperation Council ended its two-day meeting. Even though the GCC did not decide to de-peg their currencies from the U.S. dollar now, some ministers noted the region is leaning that way on account of the inflation that the peg is engendering in their countries. Traders await the release of November non-farm payrolls data on Friday. In eurozone news, German finance minister Steinbrueck said recent FX movements have been “disorderly” while ECB member Noyer said macroeconomic uncertainties are challenging for central banks. The ECB is not expected to change monetary policy on Thursday and President Trichet’s remarks will be closely scrutinized after the meeting. The ECB will also release its latest growth and inflation targets for 2009. Data released in the eurozone today saw October PPI up 0.6% m/m and 3.3% y/y. Euro bids are cited around the US$ 1.4605 level.

The yen appreciated vis-a-vis the U.S. dollar today as the greenback tested bids around the 109.55 level and was capped around the 110.50 level. Technically, today’s intraday high was right around the 38.2% retracement of the move from 115.90 to 107.20. Traders increased yen longs overnight ahead of the 12 December meeting between the U.S. and China outside of Beijing on the notion People’s Bank of China could tighten monetary policy before then. Data released in Japan today saw the November monetary base up 1.0% y/y, the fourth consecutive monthly rise, while the September domestic corporate foods price index was up +1.3% y/y. Most traders believe Bank of Japan’s Policy Board will not raise interest rates until H1 or H2 2008. The Nikkei 225 stock index lost 0.95% to close at 15,480.19. Dollar bids are cited around the 109.25 level. The euro moved higher vis-a-vis the yen as the single currency tested offers around the 162.20 level and was supported around the ?160.90 level. The British pound moved lower vis-a-vis the yen as sterling tested bids around the ?225.55 level while the Swiss franc gained ground vis-a-vis the yen and tested offers around the ?98.30 level. The Chinese yuan appreciated vis-a-vis the U.S. dollar as the greenback closed at CNY 7.3985 in the over-the-counter market, down from CNY 7.4025. China and the U.S. will convene on 12 December at their next Strategic Economic Dialogue and there will be more pressure on China to allow the yuan to appreciate further. Some traders believe PBoC may tighten interest rates between now and then. A Chinese government think tank sees 2007 GDP growth at 11.6% with CPI at 4.5%.

The British pound weakened vis-a-vis the U.S. dollar today as cable tested bids around the US$ 2.0565 level and was capped around the $2.0670 figure. Technically, today’s intraday high was right around the 38.2% retracement of the move from $1.9870 to $2.1160. Data released in the U.K. today saw BRC November high street sales up 1.2% m/m, up from October’s 1.0% level but below forecasts. Also, November PMI construction fell to a fourteen-month low of 54.3. Notably, interbank lending costs in the U.K. continue to creep up with the one-month rate at 6.749%, a nine-year high and more than 100bps above the BoE’s 5.75% target rate. Some traders believe BoE’s Monetary Policy Committee will ease monetary policy on Thursday while others believe MPC officials will lower rates beginning in Q1 2008. Cable bids are cited around the US$ 2.0365 level. The euro moved higher vis-a-vis the British pound as the single currency tested offers around the ?0.7175 level and was supported around the ?0.7090 level.

The Swiss franc appreciated vis-a-vis the U.S. dollar today as the greenback tested bids around the CHF 1.1160 level and was capped around the CHF 1.1320 level. Some traders believe Swiss National Bank will tighten monetary policy on 13 December while others believe SNB will not tighten next week. Dollar offers are cited around the CHF 1.1390 level. The euro and British pound weakened vis-a-vis the Swiss franc as the crosses tested bids around the CHF 1.6465 and CHF 2.2970 levels, respectively.