The euro strengthened vis-a-vis the U.S. dollar today as the single currency tested offers around the US$ 1.3775 level and was supported around the $1.3665 level. The common currency rocketed to its highest level since 9 August after the release of much weaker-than-expected U.S. August non-farm payrolls data that saw 4,000 jobs lost last month – a stark contrast to expectations for about 110,000 in new jobs creation. Additionally, the combined jobs growth for June and July were downwardly revised by 81,000. The unemployment rate held steady at 4.6% and average hourly earnings were up +0.3%. Today’s jobs numbers will likely increase the pressure on the Federal Open Market Committee to lower the federal funds target rate when policymakers convene on 18 September. Some of the job losses last month were clearly related to the turbulence in U.S. and global credit markets that was caused by the subprime mortgage shakeout in the U.S. Today’s data will elevate the sense of panic in the market and will render it more difficult for the Fed to maintain an inflation-minded policy bias. Yesterday, Atlanta Fed President Lockhart said he has not seen “hard or soft data that provide conclusive signs that housing problems are spilling over into the broad economy.” Dallas Fed President Fisher said recent data have been “rather positive” and St. Louis Fed President Poole reported “I don't think we should take for granted that the economy is going to nosedive.” In eurozone news, European Central Bank member Weber said the markets need to pay closer attention to how central banks are responsive to economic data. Data released in the eurozone today saw German industrial production up 0.1% m/m and 4.6% y/y while the German July current account surplus narrowed to 14.1 billion. Euro bids are cited around the US$ 1.3620 level.

e yen came appreciated sharply vis-a-vis the U.S. dollar today as the greenback tested bids around the ?114.30 level and was capped around the 115.65 level. The pair moved to its lowest level this week after stops were hit below the 114.55 level, representing the 23.6% retracement of the move from 124.15 to 111.60. Data released in Japan overnight saw the revised July index of leading economic indicators fall to 70.0 while the coincident index backed off to 66.7. It was also reported that August foreign reserves printed at US$ 932.16 billion. Finance minister Nukaga spoke today and intimated the government may seek to boost the consumption tax. The Japanese government bond market is pricing in no interest rate increase by Bank of Japan when policymakers meet on 18-19 September. The global credit glut does not seem to be having a major impact on Japan at this time but many traders believe the BoJ may wait until closer to the end of the year before lifting the overnight call rate by +0.25% to +0.75%. The Nikkei 225 stock index shed 0.83% to close at 16,122.16. Dollar bids are cited around the 112.55 level. The euro came off vis-a-vis the yen as the single currency tested bids around the 157.10 level and was capped around the ?158.25 level. The British pound and Swiss franc weakened vis-a-vis the yen as the crosses tested bids around the 231.70 and ?95.60 levels, respectively. The Chinese yuan came off marginally vis-a-vis the U.S. dollar as the greenback closed at CNY 7.5395 in the over-the-counter market, up from CNY 7.5384. A government official indicated CPI will likely remain elevated until October. People’s Bank of China member Fan Gang reported “If there is a (yuan) revaluation, purchasing power may increase. But if the revaluation leads to a reduction of jobs or employment...then the number of people who have consuming power will get less.” Another report estimated China’s foreign exchange reserves are approaching US$ 1.4 trillion.

The British pound appreciated vis-a-vis the U.S. dollar today as cable tested bids around the US$ 2.0325 level and was supported around the $2.0160 level. Technically, today’s intraday low was right around the 50% retracement of the move from $2.0655 to $1.9650. The NIESR think tank estimated that GDP growth eased to 0.7% in the three months to August from 0.8% in the three months to July. Also, it was reported that U.K. construction output rose y/y in Q2. Traders are paying very close attention to U.K. money markets were the three-month sterling Libor deposit rate moved higher to 6.89%, 114 basis points above Bank of England’s 5.75% target rate. This is the greatest spread in some twenty years and underscores the premium being paid for interbank credit in reaction to the global liquidity crisis. Cable bids are cited around the US$ 2.0160 level. The euro moved higher vis-a-vis the British pound as the single currency tested offers around the 0.6785 level and was supported around the 0.6760 level.

The Swiss franc gained ground vis-a-vis the U.S. dollar today as the greenback tested bids around the CHF 1.1895 level and was capped around the CHF 1.2025 level. Technically, today’s intraday high was just above the 50% retracement of the move from CHF 1.1815 to CHF 1.2215. Dollar offers are cited around the CHF 1.2120 level. The euro and British pound came off vis-a-vis the Swiss franc as the crosses tested bids around the CHF 1.6385 and CHF 2.4145 levels, respectively.

The Australian dollar gained marginal ground vis-a-vis the U.S. dollar today as the Aussie tested offers around the US$ 0.8310 level and was supported around the $0.8255 level. The pair reached its highest level since 27 August. Data released in Australia today saw the performance of construction index recede to 48.4. Australian dollar bids are cited around the US$ 0.8130 level. The New Zealand dollar moved lower vis-a-vis the U.S. dollar as the kiwi tested bids around the US$ 0.6885 level and was capped around the US$ 0.6935 level. Data released in New Zealand today saw the Q2 value of building construction off 0.5% q/q. New Zealand dollar bids are cited around the US$ 0.6760 level.

The Canadian dollar gained marginal ground vis-a-vis the U.S. dollar today as the greenback tested bids around the C$ 1.0475 level and was capped around the C$ 1.0535 level. Data released in Canada today saw the August net change in employment print at +23,300 with the unemployment rate steady at a 33-year low of 6.0%. Year-to-date, around 232,000 new jobs have been created. U.S. dollar offers are cited around the C$ 1.0655 level.