The euro appreciated vis-à-vis the U.S. dollar last week as the single currency tested bids around the $1.4910 level and was supported around the $1.4630 level. The pair gained about 125 pips last week. Rumours abound that Fannie Mae and Freddie Mac may be nationalized and U.S. investment banking giant Lehman Brothers is facing severe problems. Korean Development Bank may try to acquire Lehman. Bernanke spoke about financial stability at the Fed’s annual Jackson Hole symposium.

ECB’s Wellink warned banks from relying too heavily on ECB funding. Deutschebank sees inflation expectations as being elevated. The German government will maintain its 1.7% GDP forecast for 2008 for now. ECB’s Liebscher sees 2008 growth around 1.5% and no recession in sight.
Data released in the U.S. last week saw the July index of leading indicators fall 0.7%; the Philadelphia Fed’s August manufacturing index improved to -12.7; weekly initial jobless claims fell 13,000 to 432,000 with continuing jobless claims off 17,000 to 3.362 million; July housing starts fell 11% to an annualized 965,000 rate; and July headline PPI was up 1.2% with core inflation up 3.5% y/y.
Data released in the eurozone last week saw the EMU-15 PMI improved to 48.0 in August; the German August PMI fell to 50.6; the German ZEW economic expectations index improved to -55.5; German producer prices were up 2.0% m/m and 8.9% y/y; the EMU-15 June foreign trade balance fell to -€100 million; and EMU-15 factory orders fell 0.3% m/m and 7.4% y/y in June.

The yen appreciated vis-à-vis the U.S. dollar last week as the greenback tested bids around the ¥108.10 level and was capped around the ¥110.55 level. The pair lost about 50 pips last week. The Nikkei 225 stock index lost 0.68% on Friday to close at ¥12,666.04. BoJ downgraded its economic assessment, noting the domestic economy is “sluggish.” BoJ’s Policy Board kept the overnight call rate unchanged at 0.50% and Governor Shirakawa sees little risk of a sharp deterioration. Finance chief Ibuki doesn’t see new JGBs being issued to fund the economic stimulus, details of which will be made available this week by Yosano. BoJ policymakers in July noted the “degree of deceleration” of foreign economies and said the BoJ must “keep close watch for second-round effects” on inflation.

Data released in Japan last week saw the July merchandise trade surplus fall 86.6% to ¥91.15 billion; the June all-industries index fell 0.9% m/m and 1.2% y/y; the June tertiary index was off 0.8%; July department store sales were off 2.5%; the June leading index was upwardly revised to 91.3; and July supermarket sales were up 0.9% to ¥1.13 trillion.
In Chinese news, the Chinese yuan appreciated vis-à-vis the U.S. dollar as the greenback closed at CNY 6.8333 in the over-the-counter market, down from CNY 6.8700.

Data released in China last week July wholesale prices up 9.4% y/y and the July property climate index fell.

The British pound depreciated vis-à-vis the U.S. dollar last week as cable tested bids around the US$ 1.8535 level and was capped around the $1.8795 level. The pair lost about 70 pips last week. BoE August MPC meeting minutes saw the same 7-to-2 split to keep repo unchanged at 5.0% with Besley and Blanchflower in dissent. Besley said rates must be kept at a “suitable” level until price pressures moderate. Zero per cent Q2 GDP growth suggests the economy may enter a recession.

Data released in the U.K. last week saw July retail sales up 0.8% m/m and 2.1% y/y; CBI August industrial trends manufacturing output total orders books weakened to -13; and Q2 GDP growth stalled at 0%.

The Swiss franc depreciated vis-à-vis the U.S. dollar last week as the greenback tested offers around the CHF 1.1040 level and was supported around the CHF 1.0855 level. The pair gained about 5 pips last week. SNB chief Roth said Swiss banks have adjusted well to the sub-prime sector and said the next rate move is unlikely to be up.

Data released in Switzerland last week saw July input price inflation up 4.9% y/y; August ZEW investor sentiment fell to -79.6; and the July trade surplus was flat at CHF 2.37 billion.

The Canadian dollar appreciated vis-à-vis the U.S. dollar last week as the greenback tested bids around the C$ 1.0560 level and was capped around the C$ 1.0725 level. The pair lost about 60 pips last week.

Data released in Canada last week saw July headline consumer prices up 0.3% m/m and 3.4% y/y with the BoC core rate up +0.1% m/m and +1.5% y/y; June retail sales rose 0.5%; and foreign investors purchased C$ 7.25 billion in Canadian securities in June.

The Australian dollar appreciated vis-à-vis the U.S. dollar last week as the Aussie tested offers around the US$ 0.8755 level and was supported around the US$ 0.8625 level. The pair gained about 75 pips last week.

Data released in Australia last week saw August job vacancies fall 4.3% and the Westpac leading index of economic activity slowed to 2.0% in June.