The euro moved sharply higher vis-à-vis the U.S. dollar today as the single currency tested offers around the US$ 1.4890 level and was supported around the $1.4730 level. The common currency rallied on growing speculation the U.S. government will bail out U.S. mortgage banking giants Fannie Mae and Freddie Mac, leading to a significant decrease in shareholder equity. The U.S. dollar also suffered on news that U.S. investment banking giant Lehman Brothers is having difficulties selling up to 50% of its current value. Traders also sold U.S. dollars after data revealed the U.S. July index of leading indicators fell 0.7%, worse-than-expected. It was also reported that the Philadelphia Fed’s August manufacturing index improved to -12.7 from -15.0 while the prices paid component fell to 57.5 from 75.6 – another reason why the U.S. dollar weakened. Additionally, weekly initial jobless claims fell 13,000 to 432,000 while the continuing jobless claims were off 17,000 to 3.362 million. In eurozone news, the EMU-15 Purchasing Managers Index improved marginally to 48.0 in August from 47.8 in July with Germany’s result falling to 50.6. European Central Bank member Wellink reported commercial banks must not become overly reliant on the ECB for funding. Euro bids are cited around the US$ 1.4315 level.

The yen appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥108.15 level and was capped around the ¥109.85 level. Technically, today’s intraday low was just above the 50% retracement of the move from ¥103.75 to ¥110.65. Data released in Japan overnight saw the July merchandise trade surplus fall 86.6% to ¥91.15 billion, below forecasts. The pair shook these data off and traders instead focused on ongoing problems in the U.S. credit markets where Fannie Mae, Freddie Mac, and U.S. investment banking giant Lehman Brothers are said to be facing extreme difficulties. Most traders expect Bank of Japan to keep the overnight call rate unchanged at 0.50% for the foreseeable future. The Nikkei 225 stock index lost 0.77% to close at ¥12,752.21. Dollar bids are cited around the ¥106.40 level. The euro moved lower vis-à-vis the yen as the single currency tested bids around the ¥160.20 level and was capped around the ¥162.20 level. The British pound and Swiss franc came off vis-à-vis the yen as the crosses tested bids around the ¥201.80 and ¥99.05 levels, respectively. The Chinese yuan appreciated vis-à-vis the U.S. dollar as the greenback closed at CNY 6.8442 in the over-the-counter market, down from CNY 6.8546.

The British pound made significant gains vis-à-vis the U.S. dollar today as cable tested offers around the US$ 1.8780 level and was supported around the $1.8605 level. Data released in the U.K. today saw July retail sales expand 0.8% m/m and 2.1% y/y. These data suggest consumer sentiment may not have weakened as much as previously forecast but government and Bank of England officials have cautioned against reading too much into one month’s data. Cable bids are cited around the $1.8015 level. The euro moved higher vis-à-vis the British pound as the single currency tested offers around the ₤0.7945 level and was supported around the ₤0.7905 level.

The Swiss franc appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the CHF 1.0840 level and was capped around the CHF 1.1000 figure. Data released in Switzerland today saw July input price inflation reach a nineteen-year high, up 4.9% y/y. These data, however, are not expected to persuade Swiss National Bank to tighten interest rates. Also, the August ZEW investor sentiment indicator fell to -79.6. Additionally, the July trade surplus was flat from June’s tally of CHF 2.37 billion. U.S. dollar offers are cited around the CHF 1.1135 level. The euro and British pound came off vis-à-vis the Swiss franc as the crosses tested bids around the CHF 1.6145 and CHF 2.0335 levels, respectively.