The euro appreciated vis-a-vis the U.S. dollar today as the single currency tested offers around the US$ 1.3660 level and was supported around the $1.3560 level. Technically, today’s intraday low was right around the 50% retracement of the move from $1.3260 to $1.3850. Traders paid close attention to the release of the Federal Open Market Committee’s minutes from their 7 August policy deliberations in which officials discussed the possible need for “a policy response” if financial markets turmoil continued. Policymakers noted “the adjustment in the housing sector could well prove to be both deeper and more prolonged than had seemed likely earlier this year.” Regarding the recent moderation in inflation, policymakers retained a hawkish bent saying “The data on core inflation received during the intermeeting period were favorable, but FOMC members believed that the readings for the past few months likely had been damped by transitory factors and did not provide reliable evidence that the recent level would be sustained.” Albeit the Fed’s views on inflation probably remain similar to that statement, the Fed’s overall policy bias is now neutral-to-expansionary given the ongoing liquidity problems in global credit markets. The Fed injected US$ 5.25 billion in temporary reserves to the economy today through overnight repurchase agreements. Traders await comments from Fed Chairman Bernanke on Friday at the annual Jackson Hole symposium. In eurozone news, the German GfK September consumer climate index is forecast to fall to 7.6 from 8.5 in August. European Central Bank member Tumpel-Gugerell referred to ECB President Trichet’s comments about monetary policy in which he recently said policymakers won’t “precommit” to a policy course. Some traders now believe the ECB will not hike rates on 6 September. Euro bids are cited around the US$ 1.3530 level.

The yen depreciated vis-a-vis the U.S. dollar today as the greenback tested offers around the 115.15 level and was supported around the 113.85 level. Technically, today’s intraday high was right around the 38.2% retracement of the move from 111.65 to 117.10. New finance minister Nukaga reported “Fundamentally speaking, the Japanese economy has not shown any major changes” and noted the economy “has not fully recovered yet from deflation.” Most traders believe Bank of Japan will lift the overnight call rate by +25bps to +0.75% by the end of the year. The Nikkei 225 stock index lost 1.69% to close at 16,012.83. Dollar bids are cited around the 113.75 level. The euro appreciated vis-a-vis the yen as the single currency tested offers around the 157.25 level and was supported around the 154.50 level. The British pound and Swiss franc moved higher vis-a-vis the yen as the crosses tested offers around the 232.10 and 96.05 levels, respectively. The Chinese yuan appreciated vis-a-vis the U.S. dollar as the greenback closed at CNY 7.5487 in the over-the-counter market, down from CNY 7.5565. People’s Bank of China Deputy Governor Su Ning reported the 2007 CPI is likely to exceed the government’s 3% target rate. Deutsche Bank reported China is likely to hike interest rates again in September.

The British pound moved up sharply vis-a-vis the U.S. dollar today as cable tested offers around the US$ 2.0160 level and was supported around the US$ 1.9960 level. Technically, today’s intraday high was right around the 50% retracement of the move from $2.0655 to $1.9650. Data released in the U.K. today saw July Land Registry house prices rise at a thirteen-month low in England and Wales. Most traders expect Bank of England’s Monetary Policy Committee to lift the repo rate by +25bps to +6.00% in the next couple of months. Cable bids are cited around the US$ 2.0035 level. The euro depreciated vis-a-vis the British pound as the single currency tested bids around the ?0.6760 level and was capped around the 0.6800 figure.

The Swiss franc gained marginal ground vis-a-vis the U.S. dollar today as the greenback tested bids around the CHF 1.1985 level and was capped around the CHF 1.2040 level. Data released in Switzerland saw the August KOF economic barometer decline to 2.06 from a revised 2.09 in July. Dollar bids are cited around the CHF 1.1910 level. The euro and British pound appreciated vis-a-vis the Swiss franc as the crosses tested offers around the CHF 1.6385 and CHF 2.4205 levels, respectively.