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• US Dollar Decline Shows No Signs of Slowing as US GDP Still Shows 5.7% Contraction in Q1
• Euro Ends the Week Right Below Key Resistance at 1.4180 - ECB to Release Credit Easing Details Next Week
• British Pound Clears 1.60 Once Again, BOE Meeting May Prove to Be a Non-Event Next Week

US Dollar Decline Shows No Signs of Slowing as US GDP Still Shows 5.7% Contraction in Q1
The US dollar continued to plunge across the majors on Friday, leaving it down more than 2 percent versus the commodity dollars and down over 1 percent against the euro, British pound, Japanese yen, and Swiss franc. Looking to the US economic calendar, US GDP was revised up to -5.7 percent in Q1 from -6.1 percent, leaving the past two quarters as the worst in 50 years. The revisions reflect a change in gross private investment to -49.3 percent from -51.8 percent, a shift in exports to -28.7 percent from -30.0 percent, and a rise in the inventory change to -$91.4 billion from -$103.7 billion. Meanwhile, personal consumption was revised down to 1.5 percent from 2.2 percent due to a contraction in demand for nondurable goods and slower services growth. That said, this is a very lagging indicator and says little about the status of the economy today. Timelier data could be found in the final reading of the University of Michigan's consumer confidence index, which was revised up to 68.7 in May from 67.9 and reflects a clear improvement from April, when the index hit 65.1. A breakdown of the report shows increased confidence in both current conditions and the economic outlook, which bodes well for consumption but is also somewhat surprising in light of the relentless rise in unemployment.

US event risk will be high next week, as ISM manufacturing and ISM non-manufacturing will be released, both of which are anticipated to reflect a slight improvement in May but a continued contraction in business activity. Traders will also want to watch for Federal Reserve Chairman Ben Bernanke's testimony before the House Budget Committee on Wednesday morning, as well as the release of US non-farm payrolls on Friday, which are projected to show another month of massive job losses and a jump in the unemployment rate to a nearly 26-year high.

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Euro Ends the Week Right Below Key Resistance at 1.4180 - ECB to Release Credit Easing Details Next Week

The euro continued to rocket higher versus the US dollar, as EUR/USD broke above 1.40 again and ended the week just below the 50 percent fib of 1.6041-1.2329 at 1.4180. However, the currency fell against the ultra-strong commodity dollars as the latest Euro-zone CPI data highlighted the contrast in interest rates between central banks like the Reserve Bank of Australian and the European Central Bank. Eurostat estimates showed that CPI fell to an annualized pace of 0.0 percent, indicating a stagnation in price growth during the month of May. The drop from 0.6 percent was sharper than expected, and leaves inflation well below the ECB's 2 percent target.

However, according to a Bloomberg News poll of economists, the ECB will leave rates unchanged at 1.00 percent next Thursday. Where the currency ends the day, though, may have more to do with what ECB President Jean-Claude Trichet says during his post-meeting press conference at 08:30 ET. Indeed, in May the ECB announced that they would buy 60 billion euros worth of covered bonds issued in the Euro-zone, but that details wouldn't be released until after this upcoming meeting. As a result, much attention will be paid to which bonds will be bought and how the ECB plans on going about buying them, as direct buying from issuers would effectively supply them with direct funding, whereas the purchase of existing covered bonds would support prices and drive down yields.

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British Pound Clears 1.60 Once Again, BOE Meeting May Prove to Be a Non-Event Next Week
GBP/USD broke clear above resistance at the 38.2 percent fib of 2.0160-1.3503 at 1.6049 on Friday as the UK's Nationwide Building Society reported that house prices rose by the most since 2006 during May at a rate of 1.2 percent to 154,016 pounds. The data suggests that the decline of the housing sector may finally be starting to stabilize. However, the British pound fell against the rest of the majors, indicating that the currency's moves had more to do with broad US dollar weakness. As it stands, GBP/USD is very overbought according to daily RSI, and while extremes can hold for days and weeks, the moves suggest the pair could turn lower at any time, making it dangerous to buy into the trend.

Next week, the Bank of England is expected to leave rates unchanged for the third straight month at an all-time low of 0.50 percent. Based on the BOE's last policy statement and the minutes from the meeting, we know that the central bank expanded their quantitative easing (QE) program by 50 billion pounds to 125 billion pounds (which happened to be by a unanimous vote), that the drop in Q1 GDP of -1.9 percent was worse than expected, and that CPI will likely will be below the BOE's 2 percent inflation target in the medium term. The minutes also revealed that some members thought that a case could be made for a larger stimulus, but the high uncertainty of QE led them to believe that there was no pressing need for the larger extension at that point. Ultimately, how the British pound responds will likely depend on the BOE's QE stance. Signs that the BOE may increase their gilt purchases could weigh heavily on the British pound, especially against the euro, while the opposite (steady rates, no QE expansion) could provide a boost to the UK's currency, though the markets are just as likely to show no reaction in this case.

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Written by: Terri Belkas, Currency Strategist for