The euro depreciated vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.5865 level and was capped around the $1.5945 level. The common currency extended yesterday’s losses after it established a new lifetime high yesterday. Traders are paying attention to a few key factors. First, there is ongoing concern in the credit markets regarding the health of the U.S. banking sector, especially after the government bailed out Fannie Mae and Freddie Mac in an extraordinary move to prevent contagion. Second, crude oil prices continue to recede and NYMEX crude oil futures for August delivery have traded today with a $133 handle. Third, traders are still digesting remarks from Federal Reserve Chairman Bernanke yesterday in which he reaffirmed the Fed’s commitment to containing inflation and stabilizing the financial markets. Data released in the U.S. today saw June consumer price inflation rise 1.1% m/m at the headline level, the fastest monthly gain since June 1982, while core inflation rose 0.3% m/m. On an annualized basis, overall inflation is up 5.0% y/y and core inflation is up 2.4% y/y. These data are consistent with yesterday’s elevated producer price inflation data and well above the 2.0% upper limit of the Fed’s perceived comfort zone. It was also reported that average weekly earnings were off 0.9% m/m in June and off 2.4% y/y, an indication that wages are not keeping up with rising prices. Other data released today saw June industrial production up 0.5% while capacity utilization improved to 79.9%. Capital flows data saw monthly net purchases of U.S. securities in May by foreign investors total –US$ 2.5 billion. Net long-term capital inflows totaled US$ 67.0 billion, down from May’s revised US$ 111.9 billion, and net foreign purchases of long-term U.S. securities fell sharply to US$ 44.4 billion. In eurozone news, EMU-15 June CPI jumped to 4.0% from 3.7% in May, far above the ECB’s 2.0% ceiling target. Also, German final June CPI was up 0.3$ m/m and 3.3% y/y. European Central Bank’s Constancio reported he expects a significant Q2 economic slowdown in the eurozone. Euro bids are cited around the $1.5645/ $1.5230 levels.

The yen appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥103.75 level and was capped around the ¥104.85 level. Technically, today’s intraday low was just above the 61.8% retracement of the move from ¥108.60 to ¥95.70. Bank of Japan downgraded its views on exports, production, and housing investment overnight and the Japanese media reported the government is likely to reduce its economic growth forecast for the current fiscal year to March 2009 to 1.3% or lower from last year’s 2.0% estimate. This report surfaced one day after BoJ reduced its growth forecast to 1.2% for the current fiscal year. Revised forecasts from the government are expected on 22 July. Data released in Japan overnight saw the May tertiary index fall 0.2% m/m, the first decline in three months. The Nikkei 225 stock index gained 0.05% to close at ¥12,760.80. Dollar bids are cited around the ¥103.65 level. The euro weakened vis-à-vis the yen as the single currency tested bids around the ¥165.30 level and was capped around the ¥166.85 level. The British pound and Swiss franc depreciated vis-à-vis the yen as the crosses tested bids around the ¥208.00 and ¥103.15 levels, respectively. The Chinese yuan appreciated vis-à-vis the U.S. dollar as the greenback closed at CNY 6.8113 in the over-the-counter market, down from CNY 6.8211 and the pair’s lowest close since the yuan revaluation of July 2005. The Chinese government denied a rumour that it is considering a proposal to slow the pace of the yuan’s appreciation.

The British pound depreciated vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.9960 level and was capped around the $2.0095 level. Data released in the U.K. today saw the June claimant count of jobseekers’ allowance rise 15,500, the largest rise since December 1992. Also, average earnings including bonuses rose 3.8% in the three months to May, down from 3.9% in the three months to April. Cable bids are cited around the US$ 1.9870/ 1.9360 levels. The euro came off vis-à-vis the British pound as the single currency tested bids around the ₤0.7920 level and was capped around the ₤0.7955 level.

The Swiss franc depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the CHF 1.0170 level and was supported around the CHF 1.0030 level. Data released in Switzerland today saw May retail sales climb 9.3%. U.S. dollar offers are cited around the CHF 1.0395 level. The euro and British pound moved higher vis-à-vis the Swiss franc as the crosses tested offers around the CHF 1.6090 and CHF 2.0305 levels, respectively.