The euro appreciated vis-a-vis the U.S. dollar last week as the single currency tested offers around the $1.3795 level and was supported around the $1.3550 level. The pair gained about 140 pips last week. Traders continued to speculate as to what the FOMC will do and say on 18 September. The Fed’s Beige Book saw a “limited” impact of the current credit crunch on the economy outside of housing. Anecdotal August retail sales evidence suggests strong results. A contraction in U.S. August jobs growth and 81,000 downward revision to June’s and July’s tallies will up the Fed’s ante. Atlanta Fed’s Lockhart, Dallas Fed’s Fisher, and St. Louis Fed’s Poole talked up the U.S. economy before the jobs numbers were released.
The ECB kept its main refinancing rate unchanged at 4.00% with Trichet noting rates are still “accommodative” and adding rates could move higher by the end of the year. The EC kept its growth forecasts unchanged and still estimates Q3 GDP growth between 0.3% and 0.8% and Q4 GDP growth between 0.2% and 0.8%. ECB’s Weber called on the markets to monitor the central bank’s reaction to data.
Data released in the U.S. last week saw the August ISM manufacturing survey recede to 52.9; July construction spending was off 0.4%; ADP private sector jobs were up 38,000 in August; August Challenger job cuts were up 85.2% m/m to 79,459; July pending home sales were off 12.2% m/m; Q2 non-farm productivity was upwardly revised to an annualized 2.6%; Q2 unit labour costs fell to their lowest level in one year at +1.4%; August ISM services printed at 55.8; weekly initial jobless claims were off 19,000 to 318,000; August non-farm payrolls fell 4,000; the August unemployment rate held steady at 4.6%; and August average hourly earnings were up +0.3%.
Data released in the eurozone last week saw the August EMU-13 manufacturing PMI survey fall to a 19-month low of 54.3; EMU-13 GDP expanded 0.3% q/q and 2.5% y/y in Q2; August EMU-13 PMI services printed at 58.0; July EMU-13 retail sales were up 0.1% m/m and 0.5% y/y; German July manufacturing orders were off 7.1% m/m; German industrial production was up 0.1% m/m and 4.6% y/y; and Germany’s July current account surplus narrowed to €14.1 billion.

The yen appreciated vis-a-vis the U.S. dollar last week as the greenback tested bids around the ?113.10 level and was capped around the ?116.45 level. The pair lost about 235 pips last week. The Nikkei 225 stock index closed the week at ?16,122.16. BoJ’s next +25bps hike could be delayed by a possible contraction in Q2 GDP. Finance boss Nukaga suggested the consumption tax may rise.
Data released in Japan last week saw non-financial firms reduce their capital expenditures in Q2 for the first time in seventeen quarters, off 4.9% y/y; July employees’ average pay was off 1.9% y/y; the August monetary base rose 0.7% y/y; August machine tool orders were up 12.3% y/y; the July index of leading economic indicators fell to 70.0; the July coincident index backed off to 66.7; and August foreign reserves printed at US$ 932.16 billion.
The Chinese yuan appreciated vis-a-vis the U.S. dollar last week as the greenback closed at CNY 7.5395 in the over-the-counter market, down from CNY 7.5450. PBOC indicated China does not maintain exposure to the U.S. subprime problem through its foreign reserves. A government official indicated the economy is not overheating but cautioned it could do so. Goldman Sachs predicted PBOC will lift rates twice by the end of the year. PBOC tightened monetary policy for the seventh time this year, lifting reserves requirements by 0.5%. The government reported CPI will likely remain elevated until October and reported foreign reserves are nearing US$ 1.4 trillion. PBOC’s Fan Gang said a yuan revaluation could lead to fewer jobs.
Data released in China last week saw the CLSA PMI survey improve to 53.4 from 53.1 in July.

The British pound appreciated vis-a-vis the U.S. dollar last week as cable tested offers around the US$ 2.0325 level and was supported around the $2.0040 level. The pair gained about 110 pips last week. Three-month sterling LIBOR spiked more than 110 bps over the repo target rate, an indication of heavy demand for financing. BoE injected overnight liquidity by raising its aggregate reserve target and pledged more but cautioned it cannot influence longer-dated maturities. BoE’s MPC kept the repo rate unchanged at 5.75% and issued a rare statement in conjunction with an unchanged decision. NIESR estimated GDP growth decelerated to 0.7% in the three months to August.
Data released in the U.K. last week saw manufacturing PMI improve to 56.3 from 55.9 in July, its strongest level in thirteen years; EEF growth in manufacturing order books and output reached its highest level since 1995; August construction PMI rose to 64.8; August BRC like-for-like retail sales were up 1.8%; the August PMI services index improved to 57.6; August REC wage pressures eased; August Nationwide consumer confidence weakened; and August BRC shop prices were unchanged m/m and up 0.4% y/y.

The Swiss franc appreciated vis-a-vis the U.S. dollar last week as the greenback tested bids around the CHF 1.1860 level and was capped around the CHF 1.2150 level. The pair lost about 210 pips last week

Data released in Switzerland last week saw August PMI improve to 65.1 from 63.0 in July; Q2 GDP was up 0.7% q/q and 2.8% y/y; and the August unemployment rate ticked up to 2.6% from 2.5% in July.

The Canadian dollar appreciated vis-a-vis the U.S. dollar last week as the greenback tested bids around the C$ 1.0475 level and was capped around the C$ 1.0580 level. The pair lost about 10 pips last week. BoC kept its overnight rate unchanged at 4.50% and dropped the word “modest further” tightening from its statement in favour of “will continue to closely monitor evolving economic and financial developments.”
Data released in Canada last week saw July building permits fell to -11.3%; the August Ivey purchasing managers; index rallied to 58.5 from 54.6 in July; and the August net change un employment grew 23,300 with the unemployment rate steady at a 33-year low of 6.0%.

The Australian dollar appreciated vis-a-vis the U.S. dollar last week as the Aussie tested offers around the US$ 0.8310 level and was supported around the US$ 0.8155 level. The pair gained about 90 pips last week. RBA kept its cash rate unchanged at 6.50%.
Data released last week saw the August performance of manufacturing index fall to 52.4; August ANZ job advertisements were up 0.1% m/m; July building approvals were up 0.4% m/m; the TD Securities August inflation gauge was up 0.5% m/m; Q2 GDP was up 0.9% q/q and 4.3% y/y; the performance of services index receded to 51.6 in August; the August unemployment rate held steady at 4.3%; and the August performance of construction index receded to 48.4.