The euro strengthened vis-a-vis the U.S. dollar today as the single currency tested offers around the US$1.4735 level and was supported around the $1.4640 level. Traders positioned themselves ahead of the Federal Open Market Committee’s interest rate decision later in the North American session. Ahead of the announcement, the December fed funds futures contract was pricing in an 82% chance the FOMC would reduce the fed funds target rate by 50bps to 4.0% while the February fed funds futures contract is pricing in a 74% chance the target rate would be 3.75% by the end of the January FOMC meeting. As is always the case, the FOMC’s policy statement will be closely monitored for clues about inflation, economic growth, housing market conditions, and any clues regarding further easings from the Fed. Data released in the U.S. today saw October wholesale inventories unchanged m/m. Traders are also taking about anecdotal evidence that U.S. holiday shopping retail activity remains fairly strong. In eurozone news, the German December ZEW business sentiment index deteriorated to its lowest level in more than fifteen years, falling to -37.2 from -32.5. Also, the German November wholesale price index was up 1.0% m/m and 5.7% y/y. Germany’s DIW institute sees Q4 GDP up 0.6% q/q and 2.1% y/y. Euro bids are cited around the US$ 1.4565 level.

The yen appreciated marginally vis-a-vis the U.S. dollar today as the greenback tested bids around the 111.45 level and was capped around the 112.15 level. The pair escalated to its strongest level since 9 November 2007 before ceding intraday gains. Data released in Japan overnight saw November consumer confidence fall to a four-year low at 39.8, evidence of worsening economic conditions. MoF’s Shinohara intervened overnight saying “exchange rates should reflect economic fundamentals.” The Nikkei 225 stock index gained 0.76% to close at 16,044.72. Dollar bids are cited around the 110.70 level. The euro moved lower vis-a-vis the yen as the single currency tested bids around the ?163.90 level and was capped around the 164.95 level. The British pound and Swiss franc moved lower vis-a-vis the yen as the crosses tested bids around the 227.50 and 98.45 levels, respectively. The Chinese yuan appreciated vis-a-vis the U.S. dollar as the greenback closed at CNY 7.3805 in the over-the-counter market, down from CNY 7.3954. Data released in China today saw the November trade surplus rise 14.7% y/y and print at US$ 26.28 billion while November CPI was up 6.9% y/y. China and Japan are engaged in a very public spat regarding the former’s refusal to issue a joint statement on exchange rates.

The British pound depreciated vis-a-vis the U.S. dollar today as cable tested bids around the US$ 2.0370 level and was capped around the $2.0515 level. Technically, today’s intraday high and low were right around the 50% and 61.8% retracement of the move from $1.9870 to $2.1160. Data released in the U.K. today saw the October global trade deficit narrow to ?7.1 billion from a revised -?8.0 billion in September. Also, CML reported that mortgage affordability worsened to its weakest level in fifteen years. Traders are speculating what yesterday’s torrid November PPI data in the U.K. mean for the short-term course of interest rates. Most traders believe the BoE’s MPC will continue easing rates but the timing of the next rate cut may now be delayed. Cable bids are cited around the US$ 2.0175 level. The euro appreciated vis-a-vis the British pound as the single currency tested offers around the ?0.7215 level and was supported around the 0.7150 level.

The Swiss franc depreciated vis-a-vis the U.S. dollar today as the greenback tested offers around the CHF 1.1360 level and was supported around the CHF 1.1255 level. Technically, today’s intraday low was right around the 23.6% retracement of the move from CHF 1.2475 to CHF 1.0885. Most traders believe Swiss National Bank will not tighten monetary policy later this week while a minority of dealers believe the SNB will continue – and potentially end – its long-standing tightening cycle. The major determinant may be the euro’s exchange rate vis-a-vis the Swiss franc and the single currency is only within 150 pips from a new multi-year high – increasing the likelihood of imported inflation from the eurozone. Dollar offers are cited around the CHF 1.1390 level. The euro and British pound escalated vis-a-vis the Swiss franc as the crosses tested offers around the CHF 1.6670 and CHF 2.3275 levels, respectively.