USD– The greenback fell last week as risk appetite picked up on better-than-expected Q1’09 US corporate earnings, with revenues for American companies, overall, showing a healthy uptick. Comments from US Treasury Secretary Geithner that the “vast majority” of US banks have more capital than needed—indicating further that most US banks are in “decent shape”—helped boost market sentiment. However, the US government’s “stress-tests” of the 19 largest financial institutions revealed that reserves at some banks have been “substantially reduced” by the recession and market turmoil. Talk that the US government will step in to provide additional funding to banks also reduced demand for safety for the US dollar. Despite cautious optimism, the market is not out of the woods just yet. Last Friday, the G-7 indicated a “weak” economic recovery is expected later this year and warned that toxic assets are still a serious threat. The FOMC will announce rate decisions this week; it is largely expected to leave the fed funds rate at 0.0% – 0.25% range. Interest rates are expected to remain at current levels at least through H1’09, though the specter of inflation may potentially result in monetary tightening as early as Q3’09. Markets will have plenty of key economic data to digest this week, namely, consumer confidence, Q1 GDP, and ISM manufacturing.

EUR – The single currency slid from recent highs as concerns over the recent outbreak of “swine flu” and its potential impact on global growth gripped markets. The euro climbed last week following better-than-forecast

economic data raising hopes that the economy had finally begun to show signs of growth. Eurozone PMI rose (+40.5 in Apr.), while industrial new orders slid a less than forecast (-0.6 in Feb.). Markets were heartened by the improved figures although PMI remains well below the 50 threshold separating growth from contraction. As a result, euro gains are likely to remain limited as markets await further signs of growth.

JPY – The yen strengthened broadly this morning, touching a one month high against the USD, as heightened risk aversion permeates the markets amid growing concerns that the “swine flu” outbreak in Mexico could become a global pandemic. Investors are worried that such an outbreak could derail economic recovery, prompting global equities to slide, curbing risk appetite and increasing the appeal of safe-haven currencies like the yen. This morning’s surge builds on the momentum started last week when the unwinding of carry trades and the announcement of a massive Japanese government debt issuance bolstered the yen.

GBP – Sterling saw roughly a 1% range last week vs. USD. Chancellor of the Exchequer Alistair Darling announced last week that his budget sets a course to reduce borrowing in coming years as the UK economy returns to growth. The pound fell against the dollar and the yen after Moody’s Investors Service said the nation’s finances are “deteriorating rapidly” and the government is taking “risks.” Housing prices in the UK actually rose in the month of April by 0.4% contrasting March & February declines of 1.6% and 1.5%, respectively. The 12-month change improved to a dismal -22.6% for April compared to -23.9% in March. UK two-year government notes posted their biggest weekly gain in more than two-months as a report showed the economy contracted in Q1’09 by the most since 1979.

CAD – The loonie saw a 2.3% gain vs. USD last week. Crude oil ranged between $46.50 and $51.55 with natural gas posting continued declines for a seven-year-low of 3.23. Canadian Industry Minister Tony Clement said last week that he wants to hear this week from the Canadian Auto Workers and the local operations of General Motors Corp. and Chrysler LLC. Clement said he wants “clarity” from both sides as to whether they will be able to reach a cost-cutting agreement, or if the companies will be forced to seek bankruptcy protection. Canada’s dollar strengthened from a three-week low as easing concern about the level of capital at US lenders overshadowed the BoC’s reduction in its key interest rate to a record low. CAD fell 0.9% earlier after the Canadian central bank cut its target rate for overnight bank loans to 0.25%—the lowest since the institution was established in 1934. Expect the Loonie to remain strong in the midst of adjusting US risk outlook and the future prospects of GM & Chrysler.

MXN – The peso posted a continued, though as of this writing, short-lived run of 1.75% vs. USD last week (low-13.1486). The peso continues to suffer from declines in crude oil prices (for which 1/3 of its physical budget was based); record drops in exports and remittances, drug cartel activities and now a new specter that threatens the struggling nation, influenza. Santander Mexico SA, the nation’s third-biggest asset manager, is buying peso bonds due in 2013 and 2014 on forecasts the central bank will keep cutting borrowing costs. Demand for pesos also fell after Mexico’s central bank cut the nation’s key lending rate more than forecast on the 17th (6.25% fore. 6.00% actual) and said it expects the nation’s economic contraction in 2009 will be deeper than it previously forecast.

CNY – The yuan is at 6.8274, little changed from Friday’s levels. The central bank yuan fixing at 6.8253 today is the highest since November 10 and a positive sign that authorities’ confidence in the economy is improving.