In the U.S. session, June PPI data showed whole sale producer prices exhibited the first increase since March, ticking up 0.1 percent. This gave rise to speculation whether this suggests inflation pressures and could leave the the door open for more easing by the Federal Reserve.

EURUSD climbed from a two-year low of 1.2161 to hit a high of 1.2255. There were market rumours that the ECB bought huge amounts of EUR. Some traders explain the reason behind the jump was mainly due to short covering ahead of the weekend.

GBPUSD rallied sharply to a high of 1.5579 from the day low of 1.5412. Sterling was boosted after the Bank of England released the details of its lending plan, which will boost credit by 80 billion pounds to companies and households, with the aim of stimulating the sluggish UK economy.

USDJPY dipped to 79.06 after the U.S. PPI data in the New York trade, before regaining some losses.

Aussie gained over 1 percent today versus the greenback after data showed the Chinese economy grew 7.6 percent  in the second quarter, in line with expectations. China is Australia’s single largest export market. AUDUSD rose to 1.0228 from 1.0121.

The scheme, called “Funding for Lending”, will see the Bank of England make low-cost funds available to banks and building societies.

These lending institutions will initially be able to borrow from the central banks the equivalent of 5 percent  of the amount they currently lend.

The main advantage of this new scheme is that after the initial allocation of 80 billion pounds, eventually  there will be no upper limit on the amount financial institutions can borrow, but the first is expected to be worth £80bn, which is 5% of the current stock of lending.

“For every pound of additional real economy lending an institution advances, an additional pound of access to the scheme will be permitted for that institution,” the Bank of England Treasury reported.

Following the news in mid-European session trading, sterling has been gaining sharply against the euro, pushing EURGBP down 3-1/2 year low of 0.7862, its lowest level since November 2008. GBPUSD rose to a high of 1.5506 at 11:49 GMT from an earlier low of 1.5412.

EURUSD jumped up 18 points 1.2217 on news of the Italy bond sale before returning to initial levels. The session low was 1.2181.

Sterling was buoyed after the Bank of England released the details of its lending plan, which will boost credit by 80 billion pounds to companies and households, with the aim of stimulating the sluggish UK economy. GBPUSD began rallying towards a high of 1.5478 going into the U.S. session, up from a low of 1.5412.

USDJPY is effectively unchanged and has been stuck in a range since yesterday, trading between 79.16 and 79.38. Yen is holding onto gains made after the Bank of Japan refrained from further policy easing after its monthly meeting yesterday. EURJPY did nothing, trading a tight  range of 96.54- 96.81.

USDCHF is trading close to a 1-1/2 year high hit yesterday at 0.9868, consolidating gains, with strong support above 0.9827

Looking ahead in the U.S. session we have PPI data and the University of Michigan consumer confidence report.

In a statement, Moody’s said: “Italy’s near-term economic outlook has deteriorated, as manifest in both weaker growth and higher unemployment, which creates risk of failure to meet fiscal consolidation targets.”

Moody’s added that “Failure to meet fiscal targets in turn could weaken market confidence further, raising the risk of a sudden stop in market funding.”

The ratings cut came just ahead of an Italian government bond sale on Friday. More than 5 billion euros ($6.1 billion) worth of debt was targeted to be sold at the bond auction. The target was indeed met, and initially Italian bond yields traded lower after the news, giving a slight boost to the euro. However, the euphoria was short lived and EURUSD moved back to prior levels, last trading at 1.2201 at 09:23 GMT.

Italy is the euro zone’s third-biggest economy, so the lower ratings, just two levels above junk, will undermine investor confidence, in the wake of a deteriorating Italian economy.

Italy’s debt is at an all time high and 10-year bond yield has risen above 6 percent in recent weeks, fueling concern that Italy might be next in line for a bailout form the EU.

EURUSD opened in Asia at 1.2201 and dipped to a low of 1.2180 on the new of Italy’s downgrade by two notches. China GDP brought the pair back up to 1.2212.

GBPUSD did little in Asia, swaying between 1.5414 and 1.5443, consolidating losses made after sterling’s sharp drop yesterday.

USDJPY ended flat after see- sawing from 79.23 to 79.38 then back down. Yen has maintained strength after the Bank of Japan refrained from further monetary easing after its policy meeting yesterday.

Aussie rallied after the satisfactory China GDP data. China is Australia’s single largest export market. AUDUSD rose to a high of 1.0173 from 1.0121 after the data.

Looking ahead of the economic calendar, focus shifts to an Italian bond auction later in the Europe session. The Moody’s downgrade has come at a bad time before Italy’s sale of 5.25 billion euros of debt.

Meanwhile markets were disappointed that the FOMC minutes yesterday did not signal more stimulus measures in the world’s largest economy, despite sluggish growth in the U.S.

EURUSD touched a two-year low of 1.2166 before recovering some losses by bouncing to 1.2210 on profit taking in the New York trading session.

GBPUSD extended losses going in to the U.S. session, falling to a one-month low of 1.5392 then paring losses climbing to 1.5438. Sterling dropped sharply after U.S. jobless claims data boosted the  dollar.

USDCHF rose 1 percent from Wednesday to hit a 1-1/2 year high of 0.9868 today. The pair eased slightly in the U.S. session to 0.9832.

Yen made large gains today after the BOJ kept its asset purchase program unchanged and did not ease monetary  policy further. This was positive for the Japanese currency, which has also gained due to its safe haven status. USDJPY consolidated losses hovering between 79.16 and 79.34. Dollar failed to make significant gains after U.S. data showed the number of Americans claiming jobless benefits last week fell to a four-year low.

A report from the U.S. Labour Department showed that jobless claims fell by 26,000 last week to 350,000. The figure was well below expectations of 372,000. The sharp decline was likely driven by fewer auto-sector lay offs than normal.

Meanwhile, continuing  jobless claims dropped by 14,000 to a seasonally adjusted 3.3 million in the week ended June 30.

EURUSD fell to 1.2166 from 1.2186 immediately after the data at 7:30 New York time before recovering slightly.

USDCHF jumped to 0.9868 from 0.9851. The dollar is trading at a 1-1/2 year high against the Swiss franc today.

The U.S. Dollar has been strengthening since yesterday following the FOMC minutes released that signalled the Fed is unlikely to further ease policy this year. Thus, no QE3 helped buoy the greenback.

The selloff in the single currency was also driven by general concerns over slowing global growth and a flight to the safe haven dollar. The FOMC minutes from yesterday hinted on no further easing in the near term, which helped give extra support to the greenback.

EURUSD opened in Europe at 1.2234 and drifted lower to break key support at 1.2200, approaching 1.2169 going into the New York session. This was the lowest level since 27 June 2010.

GBPUSD: after a brief correction in the Asian session  to 1.5515, cable resumed its downtrend to 1.5432, the lowest level in a month.

USDCHF soared to a new 1-1/2 year high of 0.9866, the highest level since December 2010, due to a broadly stronger dollar boosted by safe haven demand.

Yen was the biggest gainer due to its safe haven status. The Japanese currency was also lifted due to the Bank of Japan not easing policy further. In its monthly policy announcement today the central bank said it tweaked its asset buying programme instead. The key overnight call rate was left unchanged between zero and 0.10 percent.   USDJPY opened in Europe at 79.48 and declined to 79.22. EURJPY opened at 97.22 and dropped to 96.50, heading towards a seven-week low.

Looking ahead, in the U.S. session we have U.S. unemployment claims data. The forecast is for a slight increase in claims.

Europe’s largest economy,  Germany, increased industrial production by 1.5 percent in May, showing that its economy has the most resilience to the debt crisis. However the figure is still not enough to compensate for a 2 percent drop in April. Italy also saw growth in IP, rising 0.8 percent in May after also falling 2 percent in April.

France was a disappointment though, with its IP falling 2.1 percent in May.

Also, Eurostat revised downward the EZ IP reading for April to a 1.1 percent drop from a 0.8 percent decrease, the deepest fall so far this year, highlighting the weak demand for goods as the euro zone suffers from its 2-1/2 year debt crisis.

EURUSD rose from 1.2225 within 30 minutes of the data at 09:00 GMT and last traded at 1.2217 at 09:50 GMT.

BOJ kept its key overnight call rate between 0.0 and 0.1 percent by a unanimous vote. This was expected. The central bank also opted not to ease monetary policy further.

In its statement the central bank maintained its view that the Japanese economy is gradually picking up, signalling its conviction that solid domestic demand will help a recovery resume without additional stimulus.

The total size of the BOJ’s asset-buying and lending programme was kept unchanged at 70 trillion yen ($879 billion).However, the BOJ fine-tuned its asset-buying and lending programme, pledging to buy more short-term securities while reducing the amount it offers under fixed-rate market operations.

The BOJ last eased policy in April and also prior to that in February via increases in its asset-buying programme. The move was to show its determination to achieve its 1 percent inflation target.

EURJPY fell to 96.83 by 07:33 GMT, its lowest level since June 4. The pair was under further pressure during a press conference by BOJ Governor Shirakawa.

Shirakawa said that Japan is expected to reach a 1 percent inflation rate in the not too distant future.

USDJPY is also down from 79.93 to 79.28 in early European trading.