The euro appreciated vis-à-vis the U.S. dollar last week as the single currency tested offers around the $1.5750 level and was supported around the $1.5365 level. The pair gained about 180 pips last week. Bernanke broke new ground by verbally intervening to support the dollar saying “We are attentive to the implications of changes in the value of the dollar for inflation and inflation expectations and will continue to formulate policy to guard against risks to both parts of our dual mandate, including the risk of an erosion in longer-term inflation expectations.” Paulson said the government will work to “ensure that the dollar remains a strong and stable currency.” Rumours abound that Lehman Brothers is in financial trouble. Fed #2 Kohn sees “weak bank earnings and further asset valuation writedowns.”

ECB officials remained hawkish with Trichet saying Europeans “fully support” the ECB’s price stability mandate. ECB’s Liebscher said the ECB will do what it takes to contain inflation while Stark seeks inflation back below 2.0% in the “medium term.” ECB’s Wellink warned against “second round effects.” European officials do not have a consensus on the French plan to cap oil taxes. ECB kept its rate unchanged at 4.00% and Trichet reported the ECB is “in a state of heightened alert” with a number of policymakers making the “case for raising rates.” A hike on 3 July cannot be ruled out. The ECB now sees 2008 inflation growth around 3.4% with GDP growth around 1.8%. Buba lifted its 2008 inflation and GDP growth forecasts to 3.0% and 2.0%, respectively.
Data released in the U.S. last week saw ISM May manufacturing improve to 49.6 from 48.6 in April; April construction spending improved to -0.4% from March’s -0.6% level; April factory orders were up 1.1% with the ex-transportation component up 2.6%; ADP May private sector jobs growth printed at 40,000; Q1 non-farm business productivity was upwardly revised to an annualized 2.6% and 3.3% y/y; unit labour cost growth was unrevised at 2.2% q/q and 0.7% y/y; Challenger May jobs layoff plans rose 15% m/m; the May ISM services index printed at 51.7; weekly initial jobless claims were off 18,000 to 357,000 with continuing claims off 16,000; May non-farm payrolls were off 49,000 with the unemployment rate rocketing higher to 5.5%; and May average hourly earnings were up 0.3% m/m and 3.5% y/y.
Data released in the eurozone last week saw EMU-15 May manufacturing PMI fall to 50.6; German final May manufacturing PMI improved to 53.6; German April new orders for machinery and industrial plant were up 35% y/y; Q1 GDP growth was upwardly revised to 0.8% q/q from 0.7% q/q and 2.2% y/y; the EMU-15 April producer price index was up 0.8% m/m and 6.1% y/y; EMU-15 April retail sales were off 0.6% m/m and 2.9% y/y; EMU-15 May services PMI was unrevised at 50.6 from 52.0 in April; German final May services PMI rallied to 53.8; German April manufacturing orders were off 1.8% m/m; and German April industrial output fell 0.8%.

The yen appreciated vis-à-vis the U.S. dollar last week as the greenback tested bids around the ¥103.85 level and was capped around the ¥106.40 level. The pair lost about 15 pips last week. The Nikkei 225 stock index gained 1.03% on Friday to close at ¥14,489.44. The government reported “inflationary pressures are certainly growing” in Japan now. Ikeo foresees “flexible” policy if elected to the BoJ’s Policy Board. Finance chief Nukaga said the government is “closely monitoring foreign exchange and U.S. economic developments.
Data released in Japan this week saw the GDP gap improve to +0.7% in the January – March quarter from +0.3% in the October – December quarter; the May monetary base slid 0.9% y/y; Q1 combined capital investment was up 4.9% y/y; and Japan’s foreign reserves fell to US$ 996.97 billion at the end of May.
In Chinese news, the Chinese yuan appreciated vis-à-vis the U.S. dollar as the greenback closed at CNY 6.9230 in the over-the-counter market, down from CNY 6.9400. PBoC will maintain a tight monetary policy to prevent rapid credit growth. Goldman Sachs sees China’s May CPI growth near a one-year low. Financial official Zhu said China wants the U.S. to pursue a strong dollar.

Data released in China last week saw the CLSA May PMI measure fall to 54.7 while the CFLP May PMI measure weakened to 53.3.

The British pound depreciated vis-à-vis the U.S. dollar last week as cable tested bids around the US$ 1.9525 level and was capped around the $1.9775 level. The pair lost about 120 pips last week. News that U.K. mortgage giant Bradford & Bingley Plc is issuing a major profit warning sent sterling tumbling. A rift may have developed between BoE’s King and Chancellor Darling on naming Bean or Tucker to a deputy governorship. BoE’s MPC kept its headline repo rate unchanged at 5.00% with minutes due 18 June.
Data released in the U.K. last week saw April mortgage approvals fell to a record low and mortgage lending fell to its lowest level since November 2004; CIPS May PMI receded to 50.0 with output prices up for the 34th consecutive month; April M4 money supply growth was downwardly revised; CIPS May construction PMI fell to 43.9; May Nationwide consumer confidence fell to its weakest level since May 2004; May services PMI fell to 49.8; BRC May shop price growth accelerated to an annualized 1.8%; and Halifax May house prices were off 2.4% m/m and 3.8% y/y.

The Swiss franc appreciated vis-à-vis the U.S. dollar last week as the greenback tested bids around the CHF 1.0205 level and was capped around the CHF 1.0520 level. The pair lost about 190 pips last week. SNB’s Jordan said recent central bank policy may have contributed to moral hazards and increased inflationary pressures.
Data released in Switzerland last week saw Q1 GDP growth was up 0.3% q/q and 3.0% y/y; May PMI fell to 55.7 from 56.7 in April; the May consumer price index was up 0.9% m/m and 2.9% y/y; and KOF sees 2008 GDP growth and unemployment at 2.0% and 2.6%, respectively.

The Canadian dollar depreciated vis-à-vis the U.S. dollar last week as the greenback tested offers around the C$ 1.0220 level and was supported around the C$ 0.9925 level. The pair gained about 250 pips last week.
Data released in Canada last week saw April building permits climb 14.5% m/m; the April Ivey PMI survey improved to 62.5 from 57.6 in April; the May unemployment rate was unchanged at 6.1%; and May net jobs growth increased 8,400.

The Australian dollar appreciated vis-à-vis the U.S. dollar last week as the Aussie tested offers around the US$ 0.9640 level and was supported around the US$ 0.9635 level. The pair gained about 45 pips last week. RBA kept its official cash rate unchanged at 7.2% and maintained a tightening bias.
Data released in Australia last week saw companies’ Q1 gross operating profits up 2.2% q/q; April retail sales fell 0.2% m/m to A$ 20.07 billion; the RBA May commodity price index was up 6.1%; Australian May PMI fall to 51.2; April building approvals were up 7.8%; the Q1 current account deficit printed at A$ 19.49 billion; Q1 GDP was up 0.6% q/q and 3.6% y/y; the April trade balance printed at –A$ 957 million; and May construction activity worsened.