The euro depreciated vis-à-vis the U.S. dollar last week as the single currency tested bids around the $1.4570 level and was capped around the $1.4805 level. The pair lost about 90 pips last week. The FDIC warned some banks may fail and public funds may need to be borrowed. FOMC officials believed “core inflation would edge back down during 2009” at their 5 August meeting.

The IMF downgraded its EMU-15 GDP forecast for 2008 to 1.4% - 1.7%. Denmark’s central bank rescued the tenth largest bank in a failure. ECB’s Papademos warned a “stronger degree” of tightening may be required. ECB’s Weber said inflation could pick up and force rates higher and ECB’s Bini-Smaghi dismissed rate cut chatter. ECB’s Stark said second-round inflation effects persist. ECB GDP growth and inflation forecasts will be released on 4 September.

Data released in the U.S. last week saw July existing home sales were up 3.9% to an annualized 5.0 million units; July new home sales climbed 2.4% to an annualized 515,000 rate; the August Richmond Fed manufacturing index was steady at -16; the August consumer confidence index climbed to 56.9; the S&P/ Case Shiller U.S. national home price index fell 15.4% y/y; Q2 GDP growth was up an annualized 3.3%; the core PCE price index was unchanged at 2.1%; weekly jobless claims fell 10,000 to 425,000; continuing jobless claims expanded 64,000 to 3.423 million; July durable goods orders rose 1.3% with the ex-transportation component up 0.7%; July personal spending rose 0.2% with personal income off 0.7%; core PCE prices rose 0.3% m/m and 2.4% y/y; the final University of Michigan consumer sentiment indicator improved to 63.0; and August Chicago PMI improved to 57.9 with prices paid lower at 80.6.

Data released in the eurozone last week saw the German Ifo business climate index fell to 94.8; the September GfK consumer climate index fell to a five-year low; Q2 GDP was off 0.5% q/q; the EMU-15 July M3 money supply expanded 9.3%; German August unemployment fell 40,000; French unemployment was up +0.1% in July; German July import prices were up 0.6% m/m and 9.3% y/y; August German provisional CPI was off 0.3% m/m and up 3.1% y/y; EMU-15 August CPI receded to 3.8% y/y; EMU-15 economic sentiment fell to 88.8; German July wholesale sales were up 0.3% m/m and 3.5% y/y; and the EMU-15 July unemployment rate was stable at 3.5%.

The yen appreciated vis-à-vis the U.S. dollar last week as the greenback tested bids around the ¥108.40 level and was capped around the ¥110.30 level. The pair lost about 140 pips last week. The Nikkei 225 stock index gained 2.39% on Friday to close at ¥13,072.87. Bank of Japan Governor Shirakawa said economic growth will remain “sluggish” and added the economy “is unlikely to experience a deep adjustment phase.” Japan’s fiscal economic stimulus is likely to be worth ¥2-3 trillion. BoJ’s Suda said “inflation should be directly confronted” when the economy permits. Nikkei reported Japan, the U.S., and Europe planned a concerted U.S. dollar-supportive intervention in March when Bear Stearns fell. Japan’s economic stimulus will aggregate ¥11.7 trillion including a ¥2.0 trillion supplemental budget. Economics minister Yosano sees inflation moving higher.

Data released in Japan last week saw nationwide core CPI up 2.4% y/y; July housing starts were up 19.0%; July retail sales were up 1.9%; July industrial output was up 0.9%; and orders received by the 50 largest contractors were up 42.3% in July.
In Chinese news, the Chinese yuan depreciated vis-à-vis the U.S. dollar as the greenback closed at CNY 6.8350 in the over-the-counter market, up from CNY 6.8333. The Chinese government is considering a CNY 370 billion economic stimulus package. PBoC said tackling inflation remains a top priority.

Data released in China last week saw the July consumer confidence index improve to 94.5.

The British pound depreciated vis-à-vis the U.S. dollar last week as cable tested bids around the US$ 1.8225 level and was capped around the $1.8590 level. The pair lost about 290 pips last week. BoE’s MPC Bean warned the economic stimulus will “drag on for some considerable time.” BoE’s Blanchflower said large rate cuts are needed now to stimulate the economy.

Data released in the U.K. last week saw BBA mortgage approvals were off 65% y/y in July with net mortgage lending off 22.7% y/y; Nationwide U.K. house prices were off 10.5% y/y; the CBI’s monthly distributive trades survey’s retail sales balance worsened to -46; July Land Registry house prices fell 2% y/y; GfK August consumer confidence rose to -36; and IRS pay deals climbed 3.5% in the three months to July.

The Swiss franc depreciated vis-à-vis the U.S. dollar last week as the greenback tested offers around the CHF 1.1085 level and was supported around the CHF 1.0885 level. The pair gained about 5 pips last week. SNB’s Hildebrand called for stronger capital requirements by Swiss banks. SNB boss Roth sees inflation easing.

Data released in Switzerland last week Q2 non-farm payrolls were up 2.4% y/y and the KOF leading growth indicator fell to 0.68 in August.

The Canadian dollar depreciated vis-à-vis the U.S. dollar last week as the greenback tested offers around the C$ 1.0600 level and was supported around the C$ 1.0410 level. The pair gained about 125 pips last week. Bank of Canada will release its interest rate announcement on 3 September. BoC’s Longworth noted Q2 GDP growth is likely to be weaker-than-expected with inflation pressures less-than-expected.

Data released in Canada last week saw the Q2 current account surplus reach C$ 6.8 billion; July producer prices were up 0.4%; the July industrial product price index decreased to 0.4% m/m; and the economy grew 0.3% in Q2.

The Australian dollar depreciated vis-à-vis the U.S. dollar last week as the Aussie tested bids around the US$ 0.8490 level and was capped around the US$ 0.8690 level. The pair lost about 50 pips last week. Futures traders are pricing in a 25bps rate cut by RBA this week followed by another 50bps in cuts in 2008.

Data released in Australia last week saw Q2 Australian business spending surge 5.7% q/q; Q2 construction activity was off 2.6% q/q; July private sector credit growth expanded 0.5%; and July new home sales were lower.