The euro moved sharply lower vis-Ã -vis the U.S. dollar today as the single currency tested bids around the US$ 1.3990 level and was capped around the $1.4155 level. The common currency gaved back most of yesterday€™s gains ahead of the long holiday weekend in the U.S. As expected, the European Central Bank kept monetary policy unchanged and ECB President Trichet reported interest rates remain €œappropriate.€ Trichet also said recent economic data indicate the global economy has reached an €œinflection point in the cycle€ and said policymakers €œhave to remain very alert.€ He added risks to the economic outlook are €œbalanced€ and added inflation expectations are €œanchored.€ Most traders walked away with the impression that official eurozone interest rates will remain unchanged for quite some time. The ECB will begin buying covered bonds € including mortgages and public sector debt € on 6 July as part of its quantitative easing framework. The euro also moved lower after Ireland€™s credit rating was downgraded by Moody€™s and after it was reported the EMU-16 unemployment rate climbed to 9.5% in May, the highest level in ten years. Also, eurozone producer prices were off for a tenth consecutive month in May, down 0.2% m/m and 5.8% y/y, the largest annual decline since at least January 1982. In U.S. news, it was reported that June non-farm payrolls fell by 467,000, much worse than the -325,000 forecast. The national unemployment rate rose to 9.5%, less than expected, but many economists continue to suggest the national unemployment rate will reach the psychologically-important 10.0% level. Average hourly earnings were up 2.7% y/y, below expectations. Euro bids are cited around the US$ 1.3435 level.
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