The euro depreciated vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.5395 level and was capped around the $1.5515 level. The common currency extended recent losses and reached its lowest level since 16 June. As expected, the Federal Open Market Committee kept the federal funds rate unchanged at 2.00% yesterday and contrary to much speculation, the only dissenter seeking higher rates was Dallas Fed President Fisher. The FOMC reported “Economic activity expanded in the second quarter, partly reflecting growth in consumer spending and exports. However, labor markets have softened further and financial markets remain under considerable stress. Tight credit conditions, the ongoing housing contraction, and elevated energy prices are likely to weigh on economic growth over the next few quarters.” On the inflation front, the Fed added it “expects inflation to moderate later this year and next year, but the inflation outlook remains highly uncertain.” On balance, most traders interpreted the Fed’s statement as being more dovish than expected, especially since the Fed omitted previous language that read downside risks to growth “appear to have diminished somewhat.” Data released in the U.S. yesterday saw the July non-manufacturing ISM index climb to 49.5 from the previous reading of 49.0. In eurozone news, the European Central Bank is expected to keep interest rates unchanged. Traders will pay close attention to comments from ECB President Trichet, particularly because the ECB voted for a rate hike last month and economic data have been deteriorating quickly. Data released in Germany today saw June manufacturing orders off 2.9% m/m and 6.1% y/y. Euro bids are cited around the $1.5380/ 1.5175 levels.

The yen depreciated marginally vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥108.55 level and was supported around the ¥108.20 level. The pair came within a couple of pips of establishing a new multi-month high dating to January 2008. Data released in Japan overnight saw the June composite index of leading economic indicators fall 1.7 points to 91.2 in June. Traders await the release of April – June gross domestic product data next week with most economists expecting a contraction in growth. Most traders expect Bank of Japan’s Policy Board will keep the overnight call rate unchanged at 0.50% for the foreseeable future. Dealers await further details about the Fukuda government’s likely supplementary budget. The Nikkei 225 stock index gained 2.63% to close at ¥13,254.89. Dollar bids are cited around the ¥106.40 level. The euro moved higher vis-à-vis the yen as the single currency tested offers around the ¥168.45 level and was supported around the ¥167.30 level. The British pound and Swiss franc moved higher vis-à-vis the yen as the crosses tested offers around the ¥212.50 and ¥103.15 levels, respectively. The Chinese yuan appreciated vis-à-vis the U.S. dollar as the greenback closed at CNY 6.8482 in the over-the-counter market, down from CNY 6.8556. A government official reported China’s consumer price inflation growth will likely be 5.5% in Q3, up from 4.5% in Q4.

The British pound weakened vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.9465 level and was capped around the $1.9595 level. Sterling reached its lowest level since 16 June. Data released in the U.K. today today saw Nationwide July consumer confidence recede to its lowest level since at least May 2004, printing at +51. Also, the BRC’s July shop price index was up 3.2% y/y. Most traders expect Bank of England’s Monetary Policy Committee will keep its overnight call rate unchanged at 5.00% tomorrow. Most recent economic data have been quite weak yet inflation remains elevated so the minutes from tomorrow’s meeting will be scrutinized in a couple of weeks. Other data released today saw REC permanent staff placements decline to 44.1 in July from 48.2 in June. NIESR reported its sees U.K. GDP growth slowing to 0.1% in the three months to July. The U.K. media is reporting Chancellor of the Exchequer Darling may freeze a stamp duty to support the U.K. housing market. Cable bids are cited around the $1.9140 level. The euro moved higher vis-à-vis the British pound as the single currency tested offers around the ₤0.7925 level and was supported around the ₤0.7900 figure.

The Swiss franc depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the CHF 1.0610 level and was supported around the CHF 1.0500 figure. The pair reached its highest level since 8 May. U.S. dollar offers are cited around the CHF 1.0760 level. The euro moved higher vis-à-vis the Swiss franc as the single currency tested offers around the CHF 1.6345 level while the British pound came off vis-à-vis the Swiss franc and tested bids around the CHF 2.0545 level.