The euro strengthened vis-a-vis the U.S. dollar today as the single currency tested offers around the US$1.4745 level and was supported around the $1.4650 level. Technically, today’s intraday high was right around the 23.6% retracement of the move from $1.4015 to $1.4965. Market volatility has been significant following yesterday’s interest rate announcement from the Federal Open Market Committee wherein policymakers reduced the fed funds target rate by 25bps to 4.25%, disappointing a large segment of the market that wanted a 50bps easing. The Fed cited an “intensification of the housing correction” and “some softening in business and consumer spending.” Notably, the Fed also cited difficult financial market conditions twice in its policy statement, an indication the Fed may be inclined to ease rates further at the FOMC meeting in late January. Boston Fed President Rosengren dissented with the majority and voted for a 50bps easing, one clue that debate may have been fierce yesterday. The greenback gave back some of yesterday’s intraday gains today vis-a-vis the euro and British pound following a rare concerted move from top global central banks to supply the money markets with a tremendous amount of year-end liquidity. The Fed, European Central Bank, Bank of England, Bank of Canada, and Swiss National Bank announced a series of measures to reduce interbank funding pressures. The Fed will hold four term auctions for tens of billions of dollars and has initiated swap agreements with central banks to reduce U.S. dollar interbank lending strains. Data released in the U.S. today saw October import prices ris 2.7% m/m, the largest monthly gain since October 1990, while the October trade deficit widened to –US$ 57.8 billion. In eurozone news, European Central Bank member Ordonez said it is “crucial there are no second-round (inflation) effects.” Data released in the eurozone today saw October EMU-13 industrial output up 0.4% m/m and 3.8% y/y. Also, Q3 employment was up 0.3% q/q and 1.9% y/y. Euro bids are cited around the US$ 1.4565 level.

The yen depreciated sharply vis-a-vis the U.S. dollar today as the greenback tested offers around the ?112.45 level and was supported around the ?110.60 level. Technically, today’s intraday high was just below the 61.8% retracement of the move from ?115.90 to ?107.20. Risk appetite returned to the market following a concerted effort by global central banks to provide a significant amount of year-end liquidity to the markets. Traders added to short yen exposure across the board under the premise Bank of Japan is unlikely to raise interest rates anytime soon; BoJ’s Policy Board next meets on 19-20 December to deliberate monetary policy. Data released in Japan overnight saw the November domestic corporate goods price index up +0.2% m/m and 2.3% y/y. Also, the October current account surplus increased 45.7% y/yto ?2.229 trillion in October, the tenth consecutive monthly increase. Moreover, November portfolio flows saw a net ?4 trillion inflow into Japan’s financial markets. Traders await Friday’s release of the quarterly tankan survey of business sentiment with expectations for a decline in business optimism and capital spending plans. Other data released today saw November revised machine tool orders up 13.0% y/y and November corporate failures down 16.3% m/m. The Nikkei 225 stock index lost 0.70% to close at ?15,932.26. Dollar bids are cited around the ?110.70 level. The euro moved higher vis-a-vis the yen as the single currency tested offers around the ?165.05 level and was supported around the ?162.15 level. The British pound and Swiss franc appreciated vis-a-vis the yen as the crosses tested offers around the ?230.35 and ?98.95 levels, respectively. The Chinese yuan appreciated vis-a-vis the U.S. dollar as the greenback closed at CNY 7.3721 in the over-the-counter market, down from CNY 7.3805 – a record post-July 2005 yuan revaluation closing low. PBoC Governor Zhou reported China favours a stronger U.S. dollar. Data released in China today saw November retail sales up 18.8% y/y while November wholesale prices were up 7.4% y/y.

The British pound strengthened vis-a-vis the U.S. dollar today as cable tested offers around the US$ 2.0575 level and was supported around the $2.0340 level. Technically, today’s intraday high was right around the 61.8% retracement of the move from $2.0830 to $2.0180. Traders increased long sterling exposure after Bank of England announced measures in conjunction with other leading central banks to avail a significant amount of year-end liquidity to the markets. Interbank lending rates in the U.K. remain quite elevated and this announcement is intended to ease some of those pressures. Data released in the U.K. today saw the November claimant count fall 11,100 to its lowest level since 1975 with unemployment at 2.5%. Likewise, average earnings including bonuses rose 4.0% in the three months to October, down from 4.1% in September. Cable bids are cited around the US$ 2.0365 level. The euro came off vis-a-vis the British pound as the single currency tested bids around the ?0.7160 level and was capped around the 0.7205 level.

The Swiss franc depreciated vis-a-vis the U.S. dollar today as the greenback tested offers around the CHF 1.1400 figure and was supported around the CHF 1.1275 level. Technically, today’s intraday low was right around the 23.6% retracement of the move from CHF 1.2475 to CHF 1.0885. Swiss National Bank took part of the global effort by central banks to provide the markets with liquidity, a move it has not undertaken since the 1970s. Traders await SNB’s quarterly interest rate decision tomorrow with most expecting no change in borrowing costs and a minority expecting another monetary tightening. Data released in Switzerland today saw the ZEW economic expectations indicator fall 0.8 points to 29.7. Dollar offers are cited around the CHF 1.1495 level. The euro and British pound appreciated vis-a-vis the Swiss franc as the crosses tested offers around the CHF 1.6725 and CHF 2.3345 levels, respectively.