The US dollar continued its decline against the euro

The US dollar continued its decline against the euro but managed a recovery after data released showing private employers cut fewer jobs than expected last month. ADP Employer Services said the United States lost 491,000 private-sector jobs in April, below the 650,000 economists had expected.

In other news, Fed Chairman Bernanke testified before congress yesterday and held an optimistic view on the economy, which he stated will gradually gain momentum, but warned that the unemployment rate would remain high for some time. His testimony came ahead of the announcement of stress tests on US banks, where a leak is already indicating that Bank of America is under-capitalized by close to $34 billion. Look for the dollar to hold close to its current ranges ahead of the ECB (European Central Bank) and BOE’s (Bank of England) policy decisions coupled with the official stress test release tomorrow.

The euro rose 0.3 percent against the dollar and 0.5 percent against the yen, after better-than-expected euro zone services sector numbers were released.
Look for the EUR/USD currency pair to hold close to familiar ranges ahead of the ECB’s policy decision tomorrow, where it is expected that interest rates will be cut by 25 basis points to a record low of 1 percent. If the ECB indicates they will keep to a much more traditional policy then look for the euro to push as high as the $1.36.

Sterling rose against both the dollar and euro after the release of strong UK service sector data. The CIPS services PMI activity index rose to 48.7 in April from 45.5 in March, the highest reading since August 2008. Analysts will look towards tomorrow’s BOE policy meeting, where interest rates are widely expected to be kept on hold at 0.5 percent. The market will continue to look to any move by the BOE to extend its campaign of quantitative easing.

With the Golden Week holiday still under way in Japan trading will remain thin, but look for the yen to remain under pressure holding under the key psychological level of 100.

The Canadian dollar continued its climb against the greenback after the release of domestic building permits data came in much stronger than expected. The value of building permits rose by 23.5 percent in March from February after five months of declines. The Ivey PMI, however, for April is expected to fall back to 40.8 from last month’s 43.2. Look for USD/CAD to remain range bound ahead of tomorrow’s announcement of the stress tests from US banks.

The Australian dollar initially weakened against both the dollar and yen despite a rise in retail sales by 2.2 percent. The currency pair did recover, however, as news is prompting speculation that the Reserve Bank of Australia may hold rates steady at its next policy setting meeting. The New Zealand dollar, however, continued its momentum pushing well above .58 cents before pulling back. Look for both currency pairs to hold close to familiar ranges primarily driven by equity markets ahead of the stress test announcement tomorrow.

The Mexican peso traded in a tight range as expectations that the swine flu epidemic will not have as big of an economic impact on Mexico’s economy take focus.