The euro strengthened vis-a-vis the U.S. dollar today as the single currency tested offers around the US$ 1.3815 level and was supported around the $1.3765 level. The common currency reached its strongest level since 8 August as traders continued to react to Friday’s weak U.S. August non-farm payrolls report that saw 4,000 jobs lost last month and sizable downward revisions to June’s and July’s tallies. Also, positive remarks from multiple European Central Bank officials over the weekend and today emboldened the common currency further. ECB President Trichet indicated there are strong indications the global economy will continue to expand despite the global credit crisis and said “"We will certainly remain alert at the global level.... This is no time for complacency.” Trichet added “When markets are embarking on significant corrections, there are also episodes of hectic behaviour, elements of overshooting in term of size of correction and also in terms of volatility. It's certainly the sentiment of central bankers who are around the table that bailing out bad investors would be the worst thing to do.” Similarly, ECB member Noyer added “Our fundamental analysis remains rather positive. There is no reason at this stage to think that euro zone growth will be significantly affected by the current disturbances on financial markets.” Data released in the eurozone today saw French industrial production rise 1.3% m/m. In U.S. news, Atlanta Fed President Lockhart spoke today and reported Friday’s U.S. payrolls report “should be evaluated with recently positive reports in retail sales. I’m processing this information along with other timely information as I prepare for next week Federal Open Market Committee meeting.” San Francisco Fed President Yellen and Federal Reserve Governor Mishkin are scheduled to speak later in the day. Philadelphia Fed President Plosser on Friday on Saturday said “I believe disruptions in financial markets can be addressed using the tools available to the Fed without necessarily having to make a shift in the overall direction of monetary policy.” Most traders believe the Fed will reduce the federal funds target rate by up to 50bps on 18 September. Euro bids are cited around the US$ 1.3620 level.

The yen depreciated vis-a-vis the U.S. dollar today as the greenback tested offers around the 114.00 figure and was supported around the 112.60 level. Technically, today’s intraday low was right around the 76.4% retracement of the move from 109.00 to 124.15. The yen weakened after the release of weaker-than-expected Q2 GDP data that saw economic output fall 0.3% last quarter, primarily on account of weak capital expenditures. These data alone will render it more likely that Bank of Japan’s Policy Board will find it more difficult to raise interest rates in the near future from their current 0.50% level. Many traders believe the central bank will lift the overnight call rate by +0.25% to +0.75% by the end of the year. Other data released today saw outstanding loans by Japanese banks rise 0.5% y/y in August while the M2+CD money supply rose 1.8% y/y. Also, the economy watchers survey receded to 44.1 in August, its lowest level since June 2003. The Nikkei 225 stock index shed 2.22% to close at 15,764.97. Dollar bids are cited around the 112.55 level. The euro gained ground vis-a-vis the yen as the single currency tested offers around the 157.35 level and was supported around the 155.15 level. The British pound and Swiss franc moved higher vis-a-vis the yen as the crosses tested offers around the 231.45 and ?96.00 levels, respectively. The Chinese yuan appreciated strongly vis-a-vis the U.S. dollar as the greenback closed at CNY 7.5214 in the over-the-counter market, down from CNY 7.5395. Data released in China today saw the August producer price index up 2.6% y/y. People’s Bank of China Governor Zhou reported he is concerned about inflation. China’s new state-controlled foreign exchange management agency, the China Investment Co Ltd, is likely to being operations this week.

The British pound appreciated vis-a-vis the U.S. dollar today as cable tested offers around the US$ 2.0330 level and was supported around the $2.0260 level. Technically, today’s intraday low was right around the 61.8% retracement of the move from $2.0655 to $1.9650. Data released in the U.K. today saw August manufacturing input prices decline for the second consecutive month while output prices notched their smallest gain in nine months. Input prices fell 0.5% m/m and July’s tally was downwardly revised to -0.8%. On an annualizes basis, input prices were up 0.7% after July’s 0.3% decline and the core component was up +0.1% m/m and +1.8% y/y. Producers’ output prices were up 0.1% m/m and 2.5% y/y. Core output prices were up 0.2% m/m and 2.4% y/y. For the most part, these data are unlikely to pressure Bank of England to tighten monetary policy further though most traders expect the Monetary Policy Committee will lift the repo rate by +25bps to 6.00% by the end of the year. Prime Minister Brown today reported discipline on public sector pay rises is “essential” to counter domestic inflationary pressures. Other data released in the U.K. today saw DCLG July annual house price inflation up 12.4%, its highest level since March 2005. Cable bids are cited around the US$ 2.0160 level. The euro gained ground vis-a-vis the British pound as the single currency tested offers around the 0.6800 figure and was supported around the 0.6780 level.

The Swiss franc gained ground vis-a-vis the U.S. dollar today as the greenback tested bids around the CHF 1.1840 level and was capped around the CHF 1.1875 level. Today’s range was very tight ahead of this week’s interest rate decision by Swiss National Bank. Most traders believe Swiss National Bank will keep monetary policy unchanged this week while a minority believes SNB will lift its three-month Swiss franc Libor rate target by +25bps. The European Central Bank’s recent decision to keep rates unchanged will likely result in no change at the SNB. The KOF economic research central lifted its 2007 GDP growth forecast to 2.6% from 2.4% with the unemployment rate forecast lower at 2.8% from 2.9%. Dollar offers are cited around the CHF 1.2120 level. The euro and British pound came off vis-a-vis the Swiss franc as the crosses tested bids around the CHF 1.6330 and CHF 2.4025 levels, respectively.

The Australian dollar slumped vis-a-vis the U.S. dollar today as the Aussie tested bids around the US$ 0.8170 level and was capped around the $0.8270 level. Technically, today’s intraday high was right around the 50% retracement of the move from $0.8870 to $0.7675. Data released in Australia today saw the number of Australian dwellings financed in July off 4.1% m/m to 63,599. Australian dollar bids are cited around the US$ 0.8130 level. The New Zealand dollar moved higher vis-a-vis the U.S. dollar as the kiwi tested offers around the US$ 0.6970 level and was supported around the US$ 0.6825 level. New Zealand dollar bids are cited around the US$ 0.6760 level.

The Canadian dollar gained marginal ground vis-a-vis the U.S. dollar today as the greenback tested bids around the C$ 1.0525 level and was capped around the C$ 1.0590 level. Canadian data scheduled for release tomorrow include housing starts, housing prices, and international trade. U.S. dollar offers are cited around the C$ 1.0655 level.