The euro appreciated vis-à-vis the U.S. dollar today as the single currency tested offers around the US$ 1.4820 level and was supported around the $1.4755 level. The common currency reached its highest level since 16 January. The Federal Open Market Committee reduced the federal funds target rate by 50bps to 3.00% and reduced the discount rate by 50bps to 3.50%. Policymakers reported “Financial markets remain under considerable stress, and credit has tightened further for some businesses and households. Moreover, recent information indicates a deepening of the housing contraction as well as some softening in labor markets. The Committee expects inflation to moderate in coming quarters, but it will be necessary to continue to monitor inflation developments carefully. Today’s policy action, combined with those taken earlier, should help to promote moderate growth over time and to mitigate the risks to economic activity. However, downside risks to growth remain. The Committee will continue to assess the effects of financial and other developments on economic prospects and will act in a timely manner as needed to address those risks.” Notably, Dallas Fed President Fisher voted for no change in rates. Prior to the meeting, the market was pricing in about an 89% chance the FOMC would reduce the federal funds target rate by 50bps and there was about a 59% chance of a 75bps cut priced in. Data released in the U.S. today were a mixed bag. First, provisional Q4 GDP data printed at an annualized 0.6%, below estimates and well below Q3’s 4.9% annualized clip. Even if the Q4 number is not downwardly revised to negative territory, many traders believe the U.S. economy is heading to a recession. Second, ADP reported private sector jobs growth of 130,000 in January, a possible indication that Friday’s January non-farm payrolls tally could be above 100,000. Today’s economic data also saw the core PCE inflation index accelerate to 2.7% with the headline index was up 3.9%. A major point of weakness in today’s GDP involved business inventories. Traders are already talking about the FOMC meetings scheduled for 18 March and 30 April. Euro bids are cited around the US$ 1.4685 level.

The yen depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥107.45 level and was supported around the ¥106.50 level. Traders lifted the pair on concerns that the pullback in U.S. economic activity is reducing demand for Japanese exports. It was reported that December industrial output was up 1.4% m/m, below forecasts, and was up 0.7% y/y, down from November’s +2.9% y/y print. The government also lowered its outlook for industrial output for the first time in seven months. The Nikkei 225 stock index lost 0.99% to close at ¥13,345.03. Dollar bids are cited around the ¥104.20 level. The euro moved higher vis-à-vis the yen as the single currency tested offers around the ¥158.85 level and was supported around the ¥157.40 level. The British pound and Swiss franc gained ground vis-à-vis the yen as the crosses tested offers around the ¥213.65 and ¥98.35 levels, respectively. The Chinese yuan appreciated vis-à-vis the U.S. dollar as the greenback closed at CNY 7.1916 in the over-the-counter market, down from CNY 7.1945 and the pair’s weakest close since the July 2005 yuan revaluation. Chinese consumer confidence weakened and it was reported that consumption comprised the largest component of 2007 GDP growth for the first time since 2001.

The British pound came off vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.9845 level and was capped around the $1.9950 level. Technically, today’s intraday high was just above the 61.8% retracement of the move from $1.9170 to $2.1160. Data released in the U.K. today saw December total consumer lending expand ₤9.1 billion, upwardly revised from November and October. Also, December mortgage approvals fell to 73,000 to a multi-year low. Bank of England Governor King was reappointed to a five-year term and MPC member Sentance was also reappointed. A government survey reported U.K. inflation expectations jumped to 3.3% in January. Cable bids are cited around the US$ 1.9640/ 1.9260 levels. The euro moved higher vis-à-vis the British pound as the single currency tested offers around the ₤0.7455 level and was supported around the ₤0.7415 level.

The Swiss franc appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the CHF 1.0875 level and was capped around the CHF 1.0950 level. The pair came within 35 pips of establishing a new multi-decade low. Data released in Switzerland today saw the January KOF economic barometer fall to 1.70 points from a revised 1.84 points in December. U.S. dollar offers are cited around the CHF 1.1155 level. The euro and British pound came off vis-à-vis the Swiss franc as the crosses tested bids around the CHF 1.6105 and CHF 2.1650 levels, respectively.