The U.S. dollar gained across the board after the release of hawkish comments

The U.S. dollar gained across the board after the release of hawkish comments from both U.S. Treasury Secretary Henry Paulson and Kansas City Fed President Thomas Hoenig. Hoenig discussed the possibility of actually raising rates to deal with the persistent threat of inflation as oil continues to hover above $122 a barrel, while Paulson commented on the credit crises, stating that "the worst is likely to be behind us.” The market took that comment a step further to conclude that the U.S. central bank's cycle of interest rate cuts is ending.

Look for the dollar to remain range bound ahead of this afternoon’s pending home sales figures and ahead of releases from key European central bank meetings due out tomorrow.

The Euro fell 0.7 percent against the dollar, off 3.5 percent from the record high seen on April 22, spurred by disappointing retail sales figures, while German manufacturing orders unexpectedly fell by 0.6 percent in March. Despite signs of slow growth in the Euro Zone, the European Central Bank is still expected to hold interest rates steady at 4 percent tomorrow.

Sterling remained pressured against the dollar after the release of weak manufacturing and industrial output data as British manufacturing output fell to its sharpest level in six months. Analysts will await tomorrow’s interest rate announcement from the Bank of England, where expectations remain that rates will hold at 5 percent. Any accompanying statement, however, will be closely watched as it becomes increasingly clear that interest rate cuts are on the horizon.

With Japan back from a two-day holiday, trading is relatively quite as the Japanese yen took its cues from a broadly stronger dollar. With little data due out of Japan this week, look for USD/JPY to remain range bound trading between 104.50 to105.60.

The Canadian dollar held close to parity against the greenback with oil continuing to hold above $122 a barrel. Analysts will look towards April housing starts tomorrow and Friday’s Canadian jobs report for further direction into the USD/CAD currency pair. The market is looking for the economy to have added 10,000 jobs and any disappointment to that figure could pressure the loonie.

The Australian dollar fell from two-week highs on a broadly stronger dollar. With commodity prices still holding strong, however, the currency remained somewhat supported. In other news the Reserve Bank of Australia (RBA) kept interest rates on hold at a 12-year high of 7.25 percent. With widening interest rate differentials between the United States and Australia, analysts are starting to predict that the Australian dollar could reach parity by next year.

The New Zealand dollar followed its Australian counterpart coming off two-week highs against the dollar and remained pressured against the yen after the central bank mentioned concern over a possible economic slowdown. The Reserve Bank of New Zealand stated in its report on financial stability that the economy might slow more sharply than expected if the global credit crisis worsens, prompting the central bank to cut overnight rates.

The Mexican peso weakened against the dollar on hawkish commentary out of the U.S. In other news the benchmark IPC stock index fell 0.29 percent to 31,131 points. The commentary out of the U.S. supports the view that interest rate spreads between the U.S. and Mexico will continue to widen as continuing inflation pressures Mexico’s central bank to consider raising rates later this year.