The euro depreciated vis-à-vis the U.S. dollar last week as the single currency tested bids around the $1.4195 level and was capped around the $1.4720 level. The pair lost about 410 pips last week. Gustav’s weakening pushed crude oil and the euro lower. EONIA rates confirm traders see no ECB cut this year. The Fed’s Beige Book reported economic activity is slowing in most of the U.S. U.S. payrolls eroded sharply. The Fed is expected to keep rates unchanged on 16 September. Bank of Korea and Russian Bank of Central Federation have been selling U.S. dollars to prop up their currencies. PIMCO’s Bill Gross warned of a “financial tsunami.”
Luxembourg’s Juncker said “the euro is still overvalued.” The ECB kept rates unchanged at 4.25% and Trichet said there is no rate bias. The ECB sees 2008 inflation between 3.4% to 3.6% and sees EMU-15 GDP at 1.1% to 1.7%. ECB’s Stark sees inflation at “worrying levels” and ECB’s Nowotny called for “heightened alertness.”
Data released in the U.S. last week saw July construction spending was off 0.6%; August ISM manufacturing fell to 49.9; the August ISM services index printed at 50.6; weekly initial jobless claims were up 15,000 to 444,000 with continuing claims up 6,000 to 3.44 million; Q2 non-farm productivity rose 4.3% with unit labour costs off 0.5% q/q; ADP August private sector job losses totaled 33,000; August non-farm payrolls were off 84,000 with a revised cumulative 160,000 loss in June and July; August unemployment printed at 6.1%; and August hourly wages were up 0.4%.
Data released in the eurozone last week saw German July retail sales fell 1.5% m/m; EMU-15 manufacturing improved to 47.6; EMU-15 July producer prices were up 1.1% m/m and 9.0% y/y with core producer prices were up 0.5% m/m and 4.3% y/y; EMU-15 Q2 GDP growth registered 1.4% y/y; EMU-15 July retail sales were off 0.4% m/m and 2.8% y/y; and German manufacturing orders fell 1.7% m/m.

The yen appreciated vis-à-vis the U.S. dollar last week as the greenback tested bids around the ¥105.50 level and was capped around the ¥108.65 level. The pair lost about 160 pips last week. The Nikkei 225 stock index lost 2.75% on Friday to close at ¥12,212.23. PM Fukuda resigned and Taro Aso is expected to be named his successor. BoJ Governor Shirakawa said the central bank is focused on long-term rates.

Data released in Japan last week saw the August monetary base was off 0.2% y/y; non-financial capital investments were off 6.5% y/y in Q2; and foreign reserves fell to US$ 996.74 billion.
In Chinese news, the Chinese yuan depreciated vis-à-vis the U.S. dollar as the greenback closed at CNY 6.8422 in the over-the-counter market, up from CNY 6.8350. The government sees CPI easing over the coming months.

Data released in China last week saw CFLP August manufacturing remain unchanged at 48.4 and CLSA August manufacturing fell to 49.2.

The British pound depreciated vis-à-vis the U.S. dollar last week as cable tested bids around the US$ 1.7535 level and was capped around the $1.8150 level. The pair lost about 565 pips last week. The U.K. government will waive the house tax purchases for one year on certain properties. BoE’s MPC kept repo unchanged at 5.0%.

Data released in the U.K. last week saw BoE July mortgage approvals sank to 33,000; August CIPS manufacturing climbed to 45.9; Hometrack August house prices were off 5.3% y/y; July net consumer credit increased to ₤1.1 billion; CIPS PMI services improved to 49.2; BRC August shop prices were up 3.8% y/y; Nationwide consumer confidence was unchanged at 52; and August Halifax house prices fell 12.7% y/y.

The Swiss franc depreciated vis-à-vis the U.S. dollar last week as the greenback tested offers around the CHF 1.1180 level and was supported around the CHF 1.0945 level. The pair gained about 140 pips last week.

Data released in Switzerland last week saw August manufacturing slow to 52.5; Q2 GDP was up 0.4% q/q and 2.3% y/y; and August consumer price inflation fell 0.3% m/m and was up 2.9% y/y.

The Canadian dollar depreciated vis-à-vis the U.S. dollar last week as the greenback tested offers around the C$ 1.0725 level and was supported around the C$ 1.0600 level. The pair gained about 15 pips last week. Bank of Canada kept its overnight rate target unchanged at 3.0% and the Bank Rate remains unchanged at 3.25%.

Data released in Canada last week saw the August unemployment rate remain unchanged at 6.1% and 15,200 new jobs were added.

The Australian dollar depreciated vis-à-vis the U.S. dollar last week as the Aussie tested bids around the US$ 0.8025 level and was capped around the US$ 0.8580 level. The pair lost about 465 pips last week. RBA cut its benchmark cash rate by 25bps to 7.0%.

Data released in Australia last week saw Q2 gross company profits were up 14.3% q/q; Q2 business inventories were up 0.3%; the Q2 current account balance printed at –A$ 12.77 billion; July building approvals were off 2.3%; Q2 GDP was up 0.3% q/q and 2.7% y/y; and the July trade balance printed at –A$ 717 million.