The euro appreciated sharply vis-à-vis the U.S. dollar today as the single currency tested offers around the US$ 1.6040 level and was supported around the $1.5880 level.


Today’s intraday high represents a new lifetime high and the move higher was precipitated by growing concerns about the health of the U.S. banking sector.
Traders are concerned that the failure of IndyMac Bank and bailouts of Fannie Mae and Freddie Mac represent the first financial institutions that are in immediate trouble. Data released in the U.S. today saw June headline producer price inflation climb +1.8% m/m and 9.2% y/y while the core rate was up +0.2% m/m and +3.0% y/y. Also, June advance retail sales were up +0.1% on the headline and +0.8% on the ex-transportation level. Federal Reserve Chairman Bernanke testified before the Senate today and said there is a “critical” need to keep inflation expectations in check.


He added the U.S. economy is expanding a bit faster than expected and should avoid a technical recession. Bernanke noted the “top priority” of the Fed is to keep financial markets functioning and said there is a “high degree of uncertainty” with regard to his outlook for higher economic growth and lower inflation. The Fed sees 2008 GDP growth of 1.0% to 1.6% and core inflation excluding food and energy at 2.2% to 2.4%. President Bush also addressed the state of the U.S.’s economy today and indicated the U.S. must do what it can to increase the supply of crude oil.



Other data released in the U.S. today saw the July Empire State manufacturing index improve to -4.98 from -8.68 in June while May business inventories were up 0.3%. In eurozone news, the German August ZEW economic expectations index fell to -63.9 from -52.4 in July, its lowest level since December 1991. Euro bids are cited around the $1.5645/ $1.5230 levels.