The dollar raced higher versus the euro on Monday, paring some of its big losses from the previous two sessions after the release of data showing that pending home sales unexpectedly showed a substantial increase in April compared to the previous month. The report showed that the pending home sales jumped 6.3 percent in April following a 1.0 percent decrease in March. The increase came as a surprise to economists, who had been expecting a decrease of about 1.0 percent. Analysts attributed the increase to bargain hunting, as buyers swooped in to buy homes after price declines in recent months.

The dollar rose to the biggest two day gain versus the euro since 2005 on Tuesday after Federal Reserve Chairman Ben Bernanke said economic risks have faded, spurring traders to boost wagers interest rates will rise. The U.S. currency rose to a three month high against the yen after Bernanke said that the central bank will “strongly resist” any waning of public confidence in stable prices. “Strong” economic fundamentals will translate to dollar strength, Treasury Secretary Henry Paulson added. The dollar climbed 1.2% to $1.5460 in New York from $1.5646 yesterday, bringing the two day gain to 2.05%, the most since the 4th November 2005. The dollar rose to 107.38, the highest since the 27th Feb, from 106.31 yesterday. Japan’s currency traded at 166.02 per euro from 166.33.

Futures on the Chicago Board of Trade show a 52% chance the Fed will raise its 2% target rate for overnight lending between banks by at least a quarter point at its 5th August meeting, compared with 31% the previous day. The contracts show a 96% chance the Fed will increase the rate by December, up from 67% odds a week ago. The USD climbed to 94.42 cents per Australian dollar, the highest since the 16th May. Against the New Zealand dollar, the U.S. currency gained for the sixth day to 75.26 cents, the strongest since January.

The U.S. dollar index rose 1.16% to 73.696, the biggest one day gain since December. Finance Ministers of the Group of Eight industrialized countries may consider joint action to deflate the price of oil and prop up the dollar at their meeting June 13 – 14 in Japan. The last time the industrialized countries intervened was on the 22nd September, when they bought the euro after it tumbled 27% from its 1999 debut. They last propped up the dollar in 1995, when it sank almost 20% in four months against the Japanese yen to a post World War II low of 79.95 yen.

The dollar fell against the euro on Wednesday, snapping its best two day advance against the single euro zone currency since 2005, with investors debating the relative outlook for interest rates in the United States and Europe given the rhetoric of central bank officials in recent days.

The dollar rallied broadly on Thursday after data showed a surprisingly strong gain in U.S. retail sales last month, boosting expectations that the Federal Reserve may raise interest rates this year. The euro, meanwhile, was on track for its biggest weekly decline against the dollar in three years, buffeted by comments from officials that suggested the European Central Bank was not about to embark on an extended period of monetary tightening. The greenback got a boost from data showing total sales at U.S. retailers rose 1% in May as consumers used government rebate cheques to support spending at a time of high gas prices and falling house prices.

The economic outlook has improved from a month ago, and central bankers will combat any increase in inflation expectations, Fed Chairman Ben S. Bernanke said.

The dollar edged higher versus other major currencies on Friday but leveled off amid the release of data showing that consumer prices rose a little more than expected in the month of May, with the bigger than expected increase largely due to a surge in energy prices. The Labor Department said its consumer price index rose 0.6 percent in May following a 0.2 percent increase in April. Economists had been expecting a slightly smaller increase in prices of about 0.5 percent. Even with the arrival of about $50 billion in tax rebates from the government’s fiscal stimulus package, the Reuters/University of Michigan Surveys of Consumers said that consumer sentiment fell more than expected to a 28-year low. The June reading for its index of confidence fell to 56.7 from May’s 59.8. Prior to the releases, the dollar shot higher to hit a 6-week high of 1.5302 versus the euro.

EURO

Investors expect a euro-zone rate hike as soon as July based on comments from European Central Bank President Jean-Claude Trichet last week. Central bank officials in the past few weeks have cranked up their discussion of rate outlooks, with the Fed also saying it will fight inflation pressures amid concerns about slowing economic growth. Analysts say the combination of surging prices and struggling economies is making it difficult for markets to gauge the outlook for interest rates and trading could be volatile based in official’s comments in the near term. On Wednesday trading the euro did touch a session low against the dollar after European Central Bank board member Jeurgen Stark was reported as saying the central bank is not considering a series of rate rises. The euro then recovered as buyers debated Stark’s comments against those made by other ECB officials in recent days. The euro traded near sessions highs, up 0.8%, at $1.5582, well of the session low of $1.5454 after Stark told Bloomberg News that the ECB will do everything necessary to anchor inflation expectations. Stark’s comments came after ECB President Jean-Claude Trichet surprised markets last week when he signaled that a rate increase could come as soon as next month to limit the inflationary impact on the economy from soaring oil prices.

On Thursday the euro was on track for its biggest weekly decline against the dollar in three years, buffeted by comments from officials that suggested the European Central Bank was not about to embark on an extended period of monetary tightening.

The euro was down 0.8% at $1.5421, on track for its biggest weekly in percentage terms since early June 2005

ECB President Jean-Claude Trichet last week also opened the door to a July rate hike, but policymakers since then have reiterated his message that this would not be the start of a big monetary policy tightening campaign. French economy minister Christine Lagarde on Thursday went one step further, saying that the ECB may even consider the July move after this weekend’s G8 meeting. ECB Executive Board member Lorenzo Bini Smaghi said on Thursday the bank will do what is needed to lower inflation but it has given indications on policy movers as far as July.

The single currency was badly burnt on Friday after Irish voters rejected the European Union reform treaty, leaving the EU in political.The euro dropped sharply on the news, as it did three years ago when the French and Dutch rejected the original constitution. It ended the week 2.6 per cent down against the dollar at $1.5379, its biggest fall

Dollar

CANADIAN DOLLAR

Canada kept its benchmark interest rate at 3% on Tuesday after analysts had surveyed a 0.25% cut to 2.75%. USD/CAD sold off rapidly as traders jumped on opportunities to get long Canadian dollars.
The loonie experienced mild strength on mid week as it advanced to a weekly high versus the euro but remain uncertain with the greenback. Traders considered comments made by the European Central bank in its monthly bulletin saying that the Governing Council is in a state of “heightened alertness” to ensure price stability.

The Canadian dollar lacked direction with the US dollar on Thursday, hovering above Tuesday’s multi-week low. The pair bounced between 1.0206 and 1.0277 throughout the day. Investors mulled a report showing US retail sales increased more than expected in May.

The loonie rose to a weekly high against the euro on Thursday. The Canadian dollar climbed to 1.5723 just before 1:00 pm ET, up from 1.5799 in the mid-morning.

Canada’s central bank surprised markets by joining the hawkish club, keeping interest rates on hold last week instead of making a widely expected cut. The Canadian dollar shed just 0.8 per cent against the roaring US dollar to C$1.0277 and rose 2 per cent against the yen to Y104.96 on Friday trading.

THE POUND

The pound had a bad week in the International currency markets.

Trading at $1.96 at the beginning of the week, it had hit $1.9414 early Friday but had a late rally sending the currency up to $1.9505 towards the end of play .

Sterling traders seem to be taken an aggressively negative attitude towards sterling and are doing little more than mirroring the attitudes within the UK, if recent confidence surveys are anything to go by.

Confidence in the UK economy is quickly eroding as data consistently outlines that stagflation is here. The number of people claiming unemployment benefit has risen for the fourth consecutive month, providing further evidence that the stuttering economy has begun to affect the jobs market. The claimant count rose by 9,000 to 819,300 last month, according to figures published by the Office of National Statistics. Jaime Craggy, analyst as One Financial said that the figures conveyed “serious warnings that the economic outlook is worsening.”

The bond market, in which yields on 10 year gilts has risen sharply in the past few weeks but are still lower than yields on shorter term gilts, is flashing the traditional indicators for a recession.
Sterling, after a trip as high as $2.10 last autumn, is back where it was a year ago against the dollar. Against the euro, it had at one point lost almost 20% since its peak last year.

Mervyn Kings plans for increased liquidity in the banking system, outlined on Tuesday have done little to encourage sterling Traders , however , the Bank of England’s quarterly survey of inflation expectations found people on average thought prices had risen 4.9% in the past year, much higher than the latest reading of 3% on the consumer price index that the Bank targets.

The survey highlights the extent to which the Bank is losing public confidence.

Investors are now betting that the Bank will have to demonstrate its inflation-fighting credentials and raise interest rates several times over the next year. Most economist think markets have overreacted, arguing growth will slow enough to remove the need for higher rates.

Data showed UK producer price inflation hit a record high in May, and import prices in April were 12.7 per cent higher than the same period last year. It shed 1 per cent against the dollar to $1.9494.

SWISS FRANK

The Swiss franc showed weakness on Thursday in New York, as it slipped to weekly low versus the greenback and also dipped against the euro.

The Swiss franc fell to a fresh weekly low against the dollar trading 1.0489 by 8:30 am ET, down from 1.0351 as Investors pondered a report showing US retail sales increased more than expected in May.

Versus the euro, the franc declined away from Wednesday’s 6-week high as the franc slid to 1.6138 by 8:30 am ET, down from a midnight high of 1.6037.

Traders digested a report showing industrial production recovered better than expected in April in the Euro zone and that industrial output grew at an expected pace on an annual basis. They also considered remarks made by the European Central bank in its monthly bulletin saying that the Governing Council is in a state of “heightened alertness” to ensure price stability.

Against the pound on Thursday, the franc lacked direction. The pair bounced between 2.0269 and 2.0398 throughout the day, just above Wednesday’s weekly low.

Swiss franc lost ground against the dollar on Friday as the greenback continued its rally from mid week, hitting a high of 1.0542.

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