The euro appreciated sharply vis-à-vis the U.S. dollar today as the single currency tested offers around the US$ 1.5680 level and was supported around the $1.5505 level. The common currency reached its highest level since 28 April as crude oil futures traded above the US$ 129 figure for the first time ever. Data released in the U.S. today saw the April producer price index rise 0.2% m/m while core inflation was up 0.4% m/m and 3.0% y/y – the largest change since December 1991. Traders will now focus on consumer price inflation data to determine if inflation is filtering through the supply chain from the wholesale level. Federal Reserve Governor Kohn today said “the most likely scenario over the next year or so is one in which economic activity firms during the second half of this year and then gathers some strength in 2009.” Regarding inflation, Kohn added he expects “core inflation to ease off slowly as commodity prices level out and as economic slack creates competitive conditions that inhibit increases in labor costs and prices.” Other data released in the U.S. today saw the Chicago Fed April national activity index decline to -1.17 from -0.98 in March. In eurozone news, German ZEW head Franz speculated the European Central Bank could raise interest rates “in the near future” and this led to a bid in the euro. The German May ZEW economic expectations index fell to -41.4 from -40.7 in April, below forecast. Also, the Belgian May consumer confidence index fell to -9 from -7 in April. Euro bids are cited around the US$ 1.5230 level.

The yen appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥103.45 level and was capped around the ¥104.45 level. As expected, Bank of Japan’s Policy Board kept the overnight call rate unchanged at 0.50% and kept its assessment of the domestic economy unchanged. The central bank reported “economic growth is slowing due to the effects of high energy and material prices” and added the economy will “grow at a slower pace for the time being and follow a moderate growth path thereafter.” The BoJ also highlighted declining corporate profits and “cautious” business sentiment. BoJ Governor Shirakawa said “"Recent data show that exports (from Japan) have expanded across the globe, but they also confirmed the flat trend of industrial output, a moderation of the growth of corporate profits and a slowdown in the expansion of capital investment. Thus, an economic slowdown is becoming more evident. We now need to assess if a weakening of the growth momentum of income, stemming from the deterioration of the terms and conditions of trade, will pose downside risks to domestic private demand. In particular, I'm watching closely how a deterioration of the terms and conditions of trade will affect corporate capital investments.” Data released in Japan overnight saw April convenience store sales fall 0.2% y/y while the March leading index was downwardly revised to 18.2 from an initial estimate of 20.0 and the coincident index was downwardly revised to 30.0. The Nikkei 225 stock index lost 0.77% to close at ¥14,160.09. Dollar bids are cited around the ¥103.00/ 101.35 levels. The euro moved higher vis-à-vis the yen as the single currency tested offers around the ¥163.00 figure and was supported around the ¥161.45 level. The British pound and Swiss franc moved higher vis-à-vis the yen as the crosses tested offers around the ¥204.85 and ¥100.05 levels, respectively. The Chinese yuan appreciated vis-à-vis the U.S. dollar as the greenback closed at CNY 6.9735 in the over-the-counter market, down from CNY 6.9753 and the pair’s lowest close since the yuan revaluation of July 2005.

The British pound appreciated sharply vis-à-vis the U.S. dollar today as cable tested offers around the US$ 1.9705 level and was supported around the $1.9475 level. Technically, today’s intraday high was just above the 50% retracement of the move from $2.0025 to $1.9360. U.K. interbank lending rates remain elevated with the overnight rate trading at 5.10%, above the central bank’s 5.00% benchmark rate. Most traders believe last week’s more hawkish-than-expected quarterly inflation report from the central bank will render it difficult for the central bank to ease monetary policy next month. Cable bids are cited around the US$ 1.9360/ 1.9100 levels. The euro moved lower vis-à-vis the British pound as the single currency tested bids around the ₤0.7940 level and was capped around the ₤0.7980 level.

The Swiss franc appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the CHF 1.0360 level and was capped around the CHF 1.0535 level. The pair reached its weakest level since 1 May. Swiss National Bank Directorate member Hildebrand indicated Switzerland may establish tighter regulatory rules for its banks than other countries. Data released in Switzerland today saw March producer and import prices up 0.7% m/m and 3.6% y/y. U.S. dollar offers are cited around the CHF 1.0760 level. The euro and British pound moved lower vis-à-vis the Swiss franc as the crosses tested bids around the CHF 1.6235 and CHF 2.0410 levels, respectively.