Overall: The dollar actually closed Monday’s trade mixed but the gains made against the Canadian dollar and Swiss franc were modest and didn’t put a dent in losses the greenback has sustained recently. The dollar tried to strengthen during the U.S. session, despite equities and crude oil moving higher, as traders begin to speculate whether the pace of the dollar’s decline can be sustained. The dollar weakened across the board for much of the day after economic data from China and the U.S. led to optimism that the global economy is on the mend and traders continued to shun the greenback as the need for a safe haven waned. Financial markets are benefitting from the increase in risk appetite on a brighter outlook for the economy, but the dollar continues to weaken against most of the other major currencies.

U.S. manufacturing contracted at a slower pace than anticipated in May as new orders increased for the first time since the start of the recession. The Institute for Supply Management’s (ISM) factory index climbed to 42.8, higher than the expected 42.2 and the previous read of 40.1. Reading below 50 indicates contraction. The production index rose to 46 from 40.4. That is the highest reading since August. The new orders index rose to 51.1 from 47.2.

The Euro (Eur/Usd) The euro gained approximately 25 points on Monday, closing well below the highs of the day and at the same level as Friday’s close. The pair had climbed to 1.4245, a gain of 120 pips from the Asian opening price, but retreated after Deutsche Bank, UBS and Barclays, large currency dealers, urged clients to sell the euro because the latest rally is draining exporters’ earnings. The pair closed the day near 1.4155.
The Pound (Gbp/Usd) Optimism that the U.K. housing recession is close to finding a bottom, if it has not already done so, is pushing the pound higher. Cable gained again on Monday, adding another 270 pips, pushing above the 1.6450 level. The strength of the pound coupled with the weakness of the dollar has led cable to gain almost 1300 pips since mid May. U.K. manufacturing PMI came in at 45.4, higher than the 44.1 that was expected and above the prior read of 43.1.

The Aussie (Aud/Usd) Traders continue to increase their appetite for risk as the global economy continues to show signs of recovery, pushing global equity markets higher and weakening the dollar as traders opt for higher yielding assets. The aussie gained 70 pips on the day after trading in a range of 165 pips. Australian retail sales increased less than expected, coming in at 0.3%, below the 0.5% expected and well below the prior read of 2.2%. Australian building approvals will be released tonight.

The Cad (Usd/Cad) The cad traded in a wide 160 pip range throughout the day, with most of the movement to the downside, but closed higher by 30 pips. The cad started to move higher after it was announced that the governments of Canada and Ontario will take a combined equity stake of approximately 12% in General Motors. Oil continued to move higher closing above $68 a barrel and global equity markets soared but the dollar managed to strengthen against its Canadian counterpart. Canadian GDP was in line with expectations this morning, coming in at -0.3%.

The Swissy (Usd/Chf) As was the case with the cad, the swissy traded in a wide range of approximately 110 pips, with most of the movement to the downside, but managed to closed higher by 25 pips. There were no Swiss economic releases this morning but GDP and SVME PMI numbers will be released tomorrow morning.

The Yen (Usd/Jpy) The dollar rose against the Japanese yen on Monday as global equity markets soared and traders, willing to take on additional risk, sold the Japanese currency. The yen gained 120 pips on the day, moving back above the 20 day simple moving average and closing slightly above the 96.50 level. The Japanese economic calendar is very light this week and there are no ‘red flag’ releases scheduled, which means equity markets should continue to dictate the direction of the Japanese yen.