The euro moved higher vis-à-vis the U.S. dollar today as the single currency tested offers around the US$ 1.4775 level and was supported around the $1.4630 level. Different factors led to gains by the common currency. First, tropical storm Gustav is nearing the U.S. oil-rich gulf region and chased NYMEX crude oil futures for October delivery above the $119 handle, leading to U.S. dollar weakness. Second, the U.S. Federal Deposit Insurance Corporation reported more U.S. banks are at risk for failure than anytime since 2003 and the U.S. media reported the FDIC may need to tap U.S. Treasury funds to finance the expected wave of bank failures. Third, some hawkish comments are still being offered by European Central Bank officials. ECB Vice President Papademos today said a “stronger degree” of ECB monetary tightening may be required if prices and wages remain elevated and heighten inflation expectations. EMU-15 inflation is now around a sixteen-year high of 4.0%. Fourth, minutes from the Federal Open Market Committee’s 5 August meeting were released in which policymakers suggested were non-committal as to when Fed policymakers may raise rates. The minutes reported “most participants anticipated that core inflation would edge back down during 2009.” Data released in the U.S. today saw July durable goods orders rise 1.3% with the ex-transportation component up 0.7%. In eurozone news, ECB’s Weber said a pick-up in growth could lead to higher rates while ECB’s Bini-Smaghi dismissed talk of rates being cut from their current 4.25% level. ECB’s Stark said the eurozone is now suffering from second-round inflation effects. ECB staff forecasts for growth and inflation will be released at the 4 September ECB meeting. Data released in the eurozone today saw German July import prices up 0.6% m/m and 9.3% y/y. Also, preliminary August consumer price inflation was off 0.3% m/m and up 3.1% y/y. Euro bids are cited around the US$ 1.4315 level.

The yen depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥109.85 level and was supported around the ¥108.70 level. Technically, today’s intraday high was right around the 50% retracement of the move from ¥124.15 to ¥95.70. Traders continue to speculate that Bank of Japan’s Policy Board will keep the overnight call rate unchanged at 0.50% for the foreseeable future. The Nikkei 225 stock index lost 0.20% to close at ¥12,752.96. 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 ¥161.50 level and was supported around the ¥160.05 level. The British pound and Swiss franc came off vis-à-vis the yen as the crosses tested bids around the ¥200.50 and ¥99.30 levels, respectively. The Chinese yuan appreciated vis-à-vis the U.S. dollar as the greenback closed at CNY 6.8380 in the over-the-counter market, down from CNY 6.8450. Data released in China overnight saw the July consumer confidence index improve to 94.5 from 94.1 in June.

The British pound depreciated vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.8285 level and was capped around the $1.8490 level. Technically, today’s intraday low was just below the 38.2% retracement of the move from $1.3680 to $2.1160. U.K. economic data continue to weaken and sterling is coming off as a consequence on the premise that Bank of England’s Monetary Policy Committee may be forced to reduce interest rates. The major problem for the MPC remains elevated rates of inflation in the U.K. Cable bids are cited around the $1.8015 level. The euro gained ground vis-à-vis the British pound as the single currency tested offers around the ₤0.8030 level and was supported around the ₤0.7960 level.

The Swiss franc depreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the CHF 1.1025 level and was supported around the CHF 1.0915 level. Swiss National Bank Chairman Roth said the central bank sees inflation easing from its current fifteen-year high as the economy slows. Some traders expect the SNB will lower interest rates in September or December. U.S. dollar offers are cited around the CHF 1.1135 level. The euro moved higher vis-à-vis the Swiss franc as the single currency tested offers around the CHF 1.6170 level while the British pound moved lower vis-à-vis the Swiss franc and tested bids around the CHF 2.0125 level.