The Euro was slammed by news that U.S. productivity increased while Euro Zone economic activity slowed. This double-whammy of economic news now has traders thinking the ECB will adopt a less hawkish tone in its next statement on May 8.

The spread differential between German Bunds and U.S. Bonds tightened as traders placed bets that the German economy will continue to weaken while the U.S. economy starts to recover.

For the first time in three days, Dollar traders once again focused on the possibility that the Fed was ending its cycle of interest rate easing.

Because of the weaker than expected news out of the Euro Zone, traders will be looking to see if the ECB policy statement on May 8 reflects a less hawkish tone about the future of interest rates.

Another factor supporting the Dollar was the statement from Federal Reserve Bank of Kansas City President Thomas Hoenig that "serious" U.S. inflation pressure might force the Fed to begin raising interest rates.

The fear circulating in the financial markets is that higher energy and food prices have embedded themselves in the U.S. economy, which will compel the Fed to adopt a tightening monetary policy. This news is supportive to a firm Dollar.

On the charts, the EURUSD stopped short of taking out last week's low at 1.536, but the weak close puts it in a position to drive the market down further to 1.523.

Bank of England May Lower Rates

The GBPUSD fell as U.K. consumer confidence declined last month to its weakest level in four years. Based on this negative news, the U.K. financial markets are indicating that another rate cut by the Bank of England on May 8 may be necessary to stimulate the economy. If there is no rate cut, then traders expect the BoE to issue less hawkish comments about the economy over the short run.

The downtrend continued in the GBPUSD as the recent bottom at 1.9599 was soundly broken by heavy selling pressure. The weak close indicates more selling pressure is likely with a downside target of 1.9361 a possibility.