The euro extended recent losses vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.4325 level and was capped around the $1.4545 level. Stops were reached below the $1.4355 level, representing the 38.2% retracement of the move from $1.1540 to $1.6040. As expected, the European Central Bank kept its main refinancing target unchanged at 4.25%. President Trichet was relatively neutral in his press conference today and this caused the monetary hawks to reduce their long euro exposure. Trichet noted there are heightened price pressures that are coincident with slowing economic growth and said the ECB has no bias on policy following July’s rate hike. The ECB’s staff raised their 2008 and 2009 forecasts for EMU-15 consumer price inflation to 3.4% - 3.6% and 2.3% - 2.9%, respectively. The ECB now sees EMU-15 GDP growth at 1.1% - 1.7% in 2008 and 0.6% - 1.8% in 2009. Data released in the eurozone today saw German manufacturing orders fall 1.7% m/m in July, the eighth consecutive monthly decline. ECB’s Wellink said the current financial crisis will likely last a couple of years. In U.S. news, the ISM services index printed at 50.6 in August, up from 49.5 in July with the prices paid sub-index lower at 72.9. Also, weekly initial jobless claims rose 15,000 to 444,000 and continuing jobless claims were up 6,000 to 3.44 million. Additionally, non-farm productivity rose a revised 4.3% annualized rate in Q2 with unit labour costs off 0.5% q/q, revised down from +1.3%. Also, ADP August private sector job losses totaled 33,000. The Fed’s Beige Book was released yesterday and reported economic activity continues to sloe in most parts of the U.S. on account of weaker consumer spending and higher prices. Euro bids are cited around the US$ 1.3840 level.

The yen appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥107.65 level and was capped around the ¥108.55 level. The pair reached its lowest level since 4 August as traders continued to unwind short yen carry trades. The major focus in Japan continues to be the political vacuum created by this week’s resignation of Prime Minister Fukuda. LDP heavyweight Taro Aso is seen as the likely successor but others have tossed their hats into the electoral ring and a decision is expected around 22 September. Many major central banks are reducing interest rates and this is decreasing the incentive to sell the lower-yielding yen in the market. The Nikkei 225 stock index lost 1.04% to close at ¥12,557.66. Dollar bids are cited around the ¥106.40 level. The euro moved sharply lower vis-à-vis the yen as the single currency tested bids around the ¥154.35 and was capped around the ¥157.75 level. The British pound and Swiss franc weakened vis-à-vis the yen as the crosses tested bids around the ¥189.95 and ¥96.80 levels, respectively. The Chinese yuan appreciated vis-à-vis the U.S. dollar as the greenback closed at CNY 6.8365 in the over-the-counter market, down from CNY 6.8434.

The British pound depreciated vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.7625 level and was capped around the $1.7860 level. Cable reached its lowest level since April 2006 as traders continued to speculate Bank of England’s Monetary Policy Committee will be forced to reduce interest rates to counter a slowing economy. The MPC today voted to keep the main repo rate unchanged at 5.0%. MPC policymakers are trapped between high inflation and rapidly slowing economic growth. Data released in the U.K. today saw Halifax August house prices fall 12.7% y/y, the seventh consecutive monthly decline. Cable bids are cited around the $1.7420 level. The euro came off vis-à-vis the British pound as the single currency tested bids around the ₤0.8100 figure and was capped around the ₤0.8185 level.

The Swiss franc depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the CHF 1.1130 level and was supported around the CHF 1.1010 level. U.S. dollar offers are cited around the CHF 1.1390 level. The euro and British pound weakened vis-à-vis the Swiss franc as the crosses tested bids around the CHF 1.5925 and CHF 1.9565 levels, respectively.