USD - Last Friday, US Retail Sales MoM fell -1.1% compared with the previous reading of 0.4% indicating that consumers are reluctant to spend. Although private payrolls increased a meager 41K in May, total private hours worked increased a robust 0.4% m/m suggesting that the demand for labor input is increasing at the same pace as in April. Further, the underlying trend in private payrolls is accelerating with GDP growth remaining above trend, labor productivity is very stretched and average weekly hours has recouped more than 2/3 of the pre-crisis level.
Fed Chairman Bernanke provided little news in his testimony to the House Budget committee. He continues to expect a moderate recovery. Inflation data are set to dominate in the US this week as markets gear up for the FOMC meeting on June 22/23, with both the CPI and PPI reports for last month due for release. Although headline inflation data have been pushed up by higher energy costs, underlying or core inflation is expected to remain well within Fed comfort levels.
Meanwhile, Industrial production data for May are expected to reflect the improving trend seen in the sector's ISM index. While off recent highs, June's Empire State and Philly Fed indices should also be consistent with a relatively strong performance from the manufacturing sector.
EUR - The euro climbed to 1-week highs vs. the dollar after market participants trimmed bearish bets following positive economic news from the Eurozone. Euro rose to highs at $1.2272 after industrial production rose 0.8% in April, the largest monthly gain in over 2 decades. The news helped assure investors that the economic recovery remains on track despite the region's fiscal woes, helping the currency to rebound from last week's lows at 1.1875.
The ECB, commenting that it was comfortable with the euro's recent decline said that it has no plans to counteract recent moves, Governing Council member Ewald Nowotny said today. The euro gains are likely to be a temporary reprieve before market participants begin selling anew on continuing fiscal concerns, resuming the currency's weakening trend.
GBP - The GBP/USD opened against the greenback today at 1.4582 after worse-than-expected economic data that had traders questioning the pace of recovery, particularly in light of forthcoming spending cuts at next weeks emergency budget on June 22. UK manufacturing weakened 0.40% in April compared to most economists forecasts of a 0.50% increase. During Friday's trading session, the pound fell from a high of 1.4758 down to a low of 1.4503. It currently trades at 1.4787.
The UK calendar is busy this week, with the CPI, retail sales and unemployment reports for May set to dominate. The inflation report is forecast to show the headline rate dropping back to 3.5%, but this is still well above the BoE's target level. Meanwhile, Retail sales are expected to show just modest growth over the month, with the claimant count projected to fall by another 20,000. The unemployment rate, however, is forecast to remain unchanged at 8.0%.
JPY - The yen remains soft as risk appetite picked up on signs of global growth. Last week, the yen weakened after Japan's new prime minister said combating deflation was an urgent issue and warned the country could risk default if it fails to take care of its growing public debt. Despite better domestic growth data of up 1.2% in Q1, growth is expected to slow as consumers curb spending amid a weak job market. Also, Europe's debt crisis casts doubt on the outlook for Japan's exports to that region. Japan's export data for May will be out on June 23rd. The yen is expected to remain weak in the near-term.
CAD - The Canadian dollar rose to a near four-week high against the U.S. dollar on higher oil prices and on optimism of a global recovery after strong Chinese export and Eurozone industrial output data. The loonie often rallies on the prospects of global economic growth because its role as a major exporter of oil and other raw materials. The economic calendar is light this week. Thus, global news and equities should provide direction for the currency.
MXN - The Mexican peso strengthened 3.17% against the dollar last week as risk taking sets in on strengthening global recovery sentiments. Further support for the peso was contributed by an increase in China's exports. A 48.5% export expansion in China this year suggests that Europe's debt crisis has not curbed economic growth in the Asian region, adding confidence to high-yielding, emerging market currencies.
AUD - The Australia dollar rose strongly vs. the US dollar amid easing risk aversion. The Aussie rose to 3-week highs at $0.8660, rebounding from last week's lows below $0.81. Strong domestic conditions continue to support the currency. The economy added an above forecast 26,900 jobs in May while unemployment declined to 5.2%.