The euro notched gains vis-à-vis the U.S. dollar today as the single currency tested offers around the US$ 1.5945 level and was supported around the $1.5790 level. The common currency regained much of the ground it lost on Friday and a few factors contributed to the pair’s gains. First, Bank of America – the U.S.’s largest retail bank – announced a 77% decline in first quarter net income and recorded at least US$ 1.91 billion in write-downs. The dollar fell on this news on broad concerns that the U.S. financial sector still has a tremendous amount of write-downs related to credit losses that have yet to be announced. Many economists believe it could take several more quarters to remove credit-related problems from banks’ balance sheets. Second, European Central Bank officials spoke very hawkishly about inflation today. Weber suggested the ECB may raise interest rates if second-round inflation effects emerge while Liebscher suggested a “path of moderation” because “certain indicators suggest that specific second-round effects are starting to appear.” Liikanen said increasing inflation pressures have reduced the chances of an ECB rate cut in 2007 and could force policymakers to debate a rate hike. Germany’s IW economic institute sees German GDP growth around 1.7% this year. Remarks from Federal Reserve Governor Kroszner and Chicago Fed President Evans will be closely watched today. Euro bids are cited around the US$ 1.5345 level.

The yen appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥102.95 level and was capped around the ¥104.05 level. Traders bought the yen back following last week’s sizable yen sell-off. Data released in Japan overnight saw the February leading index upwardly revised to 54.5 from 50.0 while the February tertiary index fell 1.7% m/m. Many important data will be released in Japan this week including corporate and consumer prices data. Most traders believe Bank of Japan’s Policy Board will keep the overnight call rate unchanged at 0.50% for the foreseeable future. The Nikkei 225 stock index climbed 1.63% to close at ¥13,696.55. Dollar offers are cited around the ¥105.55 level. The euro gained ground vis-à-vis the yen as the single currency tested offers around the ¥164.85 level and was supported around the ¥163.90 level. The British pound fell vis-à-vis the yen as sterling tested bids around the ¥204.20 level while the Swiss franc appreciated vis-à-vis the yen as the pair tested offers around the ¥102.55 level. The Chinese yuan weakened vis-à-vis the U.S. dollar today as the greenback closed at CNY 7.000 in the over-the-counter market, up from CNY 6.9935. The government reported 2008 GDP growth will likely slow from 2007’s level of

The British pound depreciated sharply vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.9800 figure and was capped around the $2.0025 level. Technically, today’s intraday high was right around the 38.2% retracement of the move from $2.1160 to $1.9335. Traders dumped the pound following news that Bank of England will allow banks to swap about GBP 50 billion of mortgage-backed and other securities for nine-month U.K. treasury bills to improve liquidity in the domestic mortgage market. Many traders are skeptical that this amount will suffice. Data released in the U.K. today saw BRC central London March retail sales up an annualized 2.0% while Rightmove April annual house price gains were at lows not seen since mid-2005. Traders also await news from Royal Bank of Scotland concerning a rights offering valued at up to ₤12 billion in order to replenish capital reserves. Cable bids are cited around the US$ 1.9605/ 1.9505 levels. The euro moved higher vis-à-vis the British pound as the single currency tested offers around the ₤0.8040 level and was supported around the ₤0.7895 level.

The Swiss franc appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the CHF 1.0065 level and was capped around the CHF 1.0205 level. Technically, today’s intraday high was right around the 38.2% retracement of the move from CHF 1.1105 to CHF 0.9645. Data released in Switzerland today saw March producer and import price inflation up 0.6% m/m and 3.9% y/y. U.S. dollar offers are cited around the CHF 1.0375 level. The euro and British pound weakened vis-à-vis the Swiss franc as the crosses tested bids around the CHF 1.6025 and CHF 1.9955 levels, respectively.