| 5/5/2008
3:00 PM: EUR/$..1.5495 $/JPY..104.75 GBP/$..1.9719
$/CHF..1.0523 AUD/$..0.9463 $/CAD..1.0131
USD Relinquishes Gains
The greenback relinquished some of its earlier
gains against the majors in New York afternoon
trading, giving back the 1.55-level versus the
euro and 1.97 against the sterling. The dollar
rallied initially on a stronger than expected
April non-manufacturing ISM, which climbed back
into expansion territory at 52 – its highest
reading since December and beating calls for a
deterioration to 49.1 from 49.6 in March. The
employment index improved to 50.8 in April, up
considerably from March at 46.9, while the business
activity index eased to 50.9, versus 52.2 a month
earlier.
While last week’s better than expected
US jobs report has tempered expectations for a
June Fed rate cut, the economy still remains weak
and has yet to bottom out. Further, the policy
statement given by the FOMC provided little indication
that the current easing cycle was over. Nonetheless,
we look for the Fed to remain on hold at 2% for
the remainder of the year. Economic reports slated
for release this week include Q1 productivity,
Q1 labor cost, March pending home sales, and weekly
jobless claims.
Central Banks in Focus
Central bank policy decisions will garner market
attention this week, with the Reserve Bank of
Australia, European Central Bank, and the Bank
of England. We do not expect any changes in policy
decisions this week but anticipate the RBA and
ECB to maintain their hawkish biases.
The RBA will announce its policy decision later
this evening and is seen keeping rates unchanged
at 7.25%. Australia’s jobs data is also
set for release, with the unemployment rate seen
unchanged at 4.1% in April and employment down
to 10k from 14.8k a month earlier.
The ECB and BoE will be announcing their rate
decisions early Thursday morning. The BoE is not
seen changing rates, instead remaining on hold
at 5.0%. As is customary when the BoE stands pat,
no policy statement is expected. The ECB is also
expected to leave policy unchanged at 4.0%. However,
we expect Bank President Trichet to maintain his
hawkish tone in the subsequent press conference.
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