The euro depreciated vis-à-vis the U.S. dollar last week as the single currency tested bids around the $1.5510 level and was capped around the $1.5895 level. The pair lost about 55 pips last week. The Bush administration announced a sweeping overhaul of the financial services industry, giving the Fed broad new powers. Fed boss Bernanke warned the economy may enter a recession in H1 and said the Fed is prepared to enact more policy measures. May fed funds futures see either a 50bps or 75bps rate cut on 30 April. Fed Governor Miskhin again voiced support for inflation targets. San Francisco Fed President Yellen warned the economy “could contract” in H1. G7 policymakers will likely talk down FX volatility next week.

ECB’s Weber said it is “too early” to offer an all-clear on the current financial crisis. Germany’s DIW sees 2008 German GDP growth around 2.0%. ECB’s Trichet warned of “second-round” inflation effects and said excessive FX volatility is “an element of concern.”
Data released in the U.S. last week saw the March Chicago PMI business barometer rise to 48.2 with the prices paid category up to 83.9; the March jobless tally fell 110,000 to 3.057 million; March ISM manufacturing improved to 48.6; February construction spending improved to -0.3%; February factory orders were off 1.3% m/m with the ex-transportation component off 1.8%; the ADP jobs report saw 8,000 private job gains in February; weekly initial jobless claims rose 38,000 to 407,000; continuing jobless claims climbed 97,000 to 2.937 million; the March services ISM index improved to 49.6; March non-farm payrolls were off 80,000 with the unemployment rate up to 5.1%; and March average hourly earnings were up 0.3%.

Data released in the eurozone last week saw EMU-15 March inflation print at 3.5%; the February M3 money supply was up 11.3% y/y; the EMU-15 March economic sentiment indicator fell to 99.6; German February wholesale sales were off 1.1% m/m and up 7.5% y/y; EMU-15 February unemployment was unchanged at 7.1%; EMU-15 March manufacturing PMI printed at 52.0; German new machinery, plant orders were up 10.0% y/y; EMU-15 February PPI was up 0.6% m/m and up 5.3% y/y; EMU-15 February retail sales fell 0.5% m/m and 0.2% y/y; and EMU-15 March services PMI printed at 51.6.

The yen depreciated vis-à-vis the U.S. dollar last week as the greenback tested offers around the ¥102.85 level and was supported around the ¥98.80 level. The pair gained about 250 pips last week. The Nikkei 225 stock index lost 0.72% on Friday to close at ¥13,293.22. The government expects the BoJ will maintain its “basic thinking” on interest rates. Acting BoJ Governor Shirakawa may be named as the permanent Governor by next week’s G7 meeting. Finance chief Nukaga wants the G7 to talk down sharp FX movements.

Data released in Japan this week saw monthly average earnings up 1.3% y/y; February housing starts were off 5.0% y/y; February industrial production was off 1.2% m/m and up 4.2% y/y; the BoJ Tankan large manufacturers sentiment index fell to +11; Japanese companies are forecasting a 5.3% decline in capital investment plans in the fiscal year to March 2009; the March monetary base was unchanged y/y; the BoJ consumer’ economic sentiment survey worsened to –57.7; and foreign investors were net sellers of Japanese shares for the sixth consecutive week.

In Chinese news, the Chinese yuan depreciated vis-à-vis the U.S. dollar as the greenback closed at CNY 7.0175 in the over-the-counter market, up from CNY 7.0120. PBoC suggested it will continue to tighten monetary policy because “there are evident upwards inflationary pressures.” Paulson said it is “dangerous” if the yuan fails to follow fundamentals. ICBC sees March CPI around 8.2%.
Data released in China last week saw February fixed-asset investment up 24.3% y/y and the CFLP March manufacturing PMI survey improved to 58.4.

The British pound appreciated vis-à-vis the U.S. dollar last week as cable tested offers around the US$ 2.0045 level and was supported around the $1.9725 level. The pair gained about 10 pips last week. BoE Governor King the central bank can’t let the economy slow too much but added inflation expectations remain elevated. BoE MPC’s Sentance was reconfirmed as a member. BoE reported tighter housing finance credit conditions and higher default rates. MPC’s Tucker suggested the BoE will loosen policy “gradually.” BoE’s MPC is expected to reduce the repo rate this week by 25bps or 50bps
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Data released in the U.K. last week saw January service sector output up 0.6% m/m; Q4 worked productivity climbed 1.7% y/y; Q4 unit wage costs were up 2.7% y/y; Hometrack house prices were off 0.2% m/m; Land Registry house prices in England and Wales were unchanged m/m in February; Q4 profitability was up 15.5%; CIPS March manufacturing was steady at 51.3; February mortgage approvals were up 73,000; February net mortgage lending growth was flat; February total net consumer lending expanded ₤8.3 billion; Q4 housing equity withdrawal fell to ₤7.3 billion; CIPS March construction PMI fell to 47.2; February final M4 money supply was off 0.2% m/m; and the March services PMI index fell to 52.1.

The Swiss franc depreciated vis-à-vis the U.S. dollar last week as the greenback tested offers around the CHF 1.0165 level and was supported around the CHF 0.9870 level. The pair gained about 70 pips last week. The Swiss government lifted its 2008 inflation forecast to 1.7% from 1.6% and lowered its 2009 GDP growth forecast to 1.5% from 1.7%. UBS announced US$ 19 billion in write-downs. SNB’s Jordan said the global financial market crisis will continue for some time and warned monetary policy has limitations.

Data released in Switzerland last week saw March PMI fell to 55.3 and March CPI was up 0.3% m/m and 2.6% y/y.

The Canadian dollar appreciated vis-à-vis the U.S. dollar last week as the greenback tested bids around the C$ 1.0010 level and was capped around the C$ 1.0325 level. The pair lost about 175 pips last week. BoC’s Jenkins said growing downside risks will likely result in more rate cuts from BoC.

Data released in Canada last week saw February manufacturing prices off 0.1% m/m and February raw materials prices were off 3.6% m/m.

The Australian dollar appreciated vis-à-vis the U.S. dollar last week as the Aussie tested offers around the US$ 0.9220 level and was supported around the US$ 0.9030 level. The pair gained about 40 pips last week. RBA kept rates unchanged at 7.25% on slowing demand. RBA’s Stevens said the RBA will monitor CPI on 23 April for new signals.

Data released in Australia last week saw February private sector credit expanded 0.7% m/m and 15.5% y/y; the March TD Securities monthly inflation gauge was up 4.0% in the twelve months to March; February new home sales fell 5.3% m/m; the March performance of services index rose to 53.8; and February retails ales were off 0.1% m/m.