The euro depreciated vis-à-vis the U.S. dollar last week as the single currency tested bids around the $1.5360 level and was capped around the $1.5695 level. The pair lost about 215 pips last week. The FOMC reduced the fed funds target rate by 25bps to 2.00% and said inflation pressures are picking up. Traders increasingly believe the U.S. economy has turned the corner towards improvement. The Fed expanded the size of its Term Auction Facility to US$ 75 billion and upped its reciprocal swap lines with the ECB and SNB.

German states’ April inflation moderated. The EC reduced its 2008 GDP forecast to 1.7% and upped its 2008 inflation forecast to 3.2%. ECB’s Liebscher said policymakers should prevent inflation with “everything that is necessary” and Trichet warned against “complacency.”
Data released in the U.S. last week saw April consumer confidence fall to 62.3 from 65.9 in March; April ISM manufacturing was unchanged at 48.6; March construction spending fell 1.1% m/m; March personal spending expanded 0.4% m/m; March personal income was up 0.3% m/m; core PCE were up 0.2% m/m and 2.1% y/y; weekly initial jobless claims were up 35,000 to 375,000 with continuing jobless claims up 35,000 to 3.019 million; Q1 GDP growth came in at an annualized 0.6% with the employment cost index at 0.7%; ADP April net private sector jobs grew 10,000; April Chicago PMI improved to 48.3; the April non-farm payrolls tally fell 20,000 while the unemployment rate fell to 5.0%; April average hourly earnings were up +0.1% m/m and +3.4% y/y; and March factory orders were up +0.1% m/m and 3.4% y/y.
Data released in the eurozone last week saw the May GkF consumer climate index improve to 5.9 from 4.8 in April; German negotiated salaries and wages expanded at their fastest pace in twelve years, up 3.3% y/y in January; German new machinery, plant orders were off 5.0% y/y; EMU-15 April provisional inflation moderated to 3.3%; the European Commission EMU-15 economic sentiment indicator fell to 97.1; the April German jobless rate fell 94,000; March wholesale sales were off 1.4% m/m and 4.6% y/y; EMU-15 March unemployment printed at 7.1%; EMU-15 April final manufacturing PMI printed at 50.7; German March retail sales were off 0.1% m/m and 6.3% y/y; and German final April manufacturing PMI printed at 53.6.

The yen depreciated vis-à-vis the U.S. dollar last week as the greenback tested offers around the ¥105.25 level and was supported around the ¥103.20 level. The pair gained about 80 pips last week. The Nikkei 225 stock index gained 2.05% on Friday to close at ¥14,049.26. BoJ kept the overnight call rate unchanged at 0.50% and moved to a neutral policy bias with Shirakawa pledging flexibility. BoJ downwardly revised its GDP growth forecast to 1.5%.
Data released in Japan this week saw construction orders were up 6.4% in March; March housing starts were off 15.6%; March industrial output was off 3.1%; March household spending fell; the March unemployment rate fell to 3.8%; and the April monetary base fell 2.8% y/y.
In Chinese news, the Chinese yuan appreciated vis-à-vis the U.S. dollar as the greenback closed at CNY 6.9870 in the over-the-counter market, down from CNY 7.0010.
Data released in China last week saw March urban unemployment print at 4.0%.

The British pound depreciated vis-à-vis the U.S. dollar last week as cable tested bids around the US$ 1.9625 level and was capped around the $1.9965 level. The pair lost about 120 pips last week. TSC unanimously said BoE chief King will serve a second term. King cautioned that inflation may print above 3.0% and said consumer spending may slow further. Halifax is seeking ₤4 billion in capitalization. MPC’s Blanchflower sees the economy weakening “significantly” and said sterling may decline.
Data released in the U.K. last week saw Hometrack April average house prices fell 0.9% y/y and 0.6% m/m; Land Registry March house prices for England and Wales were off 0.4% m/m; the CBI April high street sales balance fell sharply to -26%; March total net consumer lending expanding ₤8.2 billion; BSA March gross lending fell to ₤3.6 billion; M4 money supply growth fell; March mortgage approvals were at all-time lows since records began; the CIPS April manufacturing PMI declined while the prices sub-index grew; Q1 construction orders fell 8% q/q and were off 8.0% y/y; GfK April consumer confidence fell to -24; Nationwide house prices were off 1.0% y/y; and Halifax April annual house price inflation was off 1.3% m/m.

The Swiss franc depreciated vis-à-vis the U.S. dollar last week as the greenback tested offers around the CHF 1.0560 level and was supported around the CHF 1.0300 level. The pair gained about 215 pips last week. SNB’s Jordan said the current three-month Libor range of 2.25% to 3.25% remains “appropriate.”
Data released in Switzerland last week saw the March UBS consumption indicator fall to 2.29 from 2.32 in February; the KOF April economic barometer fell to 1.20; and April manufacturing PMI improved to 56.6 from 55.3 in March.

The Canadian dollar depreciated vis-à-vis the U.S. dollar last week as the greenback tested offers around the C$ 1.0235 level and was supported around the C$ 1.0035 level. The pair gained about 55 pips last week. BoC Governor Carney said Canada’s robust terms of trade are “appropriately reflected” in the loonie. Carney added “Our ability to hit our 2% target is not compromised by inflation in other countries provided we take it into account and provided we continue to follow a flexible exchange rate.”
Data released in Canada last week saw the NAB Q1 business confidence index fell to -4, its lowest level since March 2001; March industrial product prices were up 1.7%; and February GDP was off 0.2%.

The Australian dollar appreciated vis-à-vis the U.S. dollar last week as the Aussie tested offers around the US$ 0.9470 level and was supported around the US$ 0.9275 level. The pair gained about 15 pips last week. RBA is likely to keep rates unchanged on Tuesday.
Data released in Australia last week saw March building approvals fall 5.7%; March private sector credit rose 0.8% m/m and 14.9% y/y; and March retail sales were up 0.5%.