• USD: Higher, Russian finance minister says USD reserve status unlikely to change in near future
  • JPY: Higher, supported by gains in cross trade, BOJ may upgrade Japan's economic outlook
  • EUR: Lower, EU Q1 employment falls at a record pace, Russia's Kudrin says USD has no rival
  • CHF: Lower, Swiss producer prices fall the most in two decades, threat of intervention
  • GBP: Lower, CBI expects no growth in the UK economy until 2010, downside limited by rally versus EUR
  • CAD and AUD: AUD & CAD lower, declining CRB, Can. manufacturing shipments fall less than expected

Overview

USD starts the week higher supported by comments from Russia’s Finance Minister Kudrin that it was too early to talk about an alternative to the USD as the world's reserve currency. Kudrin told the G-8 that Russia has full confidence in the USD and that replacement of the USD as the global reserve currency will not be a major topic of discussion at tomorrow's BRIC conference in Russia. BRIC nations recently raised concerns about the USD reserve status and have increased purchases of IMF bonds. The USD was also supported by concern about the outlook for the European economies as EU Q1 employment falls at a record pace and the CBI says that the UK economy will not begin to grow until next year. CHF was pressured by report of declining Swiss producer import prices. The commodity currencies were pressured by a drop in the price of crude below $71 a barrel. CAD decline was limited by report of better than expected April manufacturing shipments. The G-8 communiqué says there are signs of global economic stabilization but recovery remains uncertain. The G-8 are discussing plans to reverse stimulus as the global economy recovers. A credible exit strategy from fiscal and monetary stimulus would be a positive for the USD. The IMF’s Strauss Kahn says the USD is correctly valued. The USD may be forming a shortterm bottom as focus shifts to improving US economic outlook, rising US interest rates and potential plans for an exit strategy from fiscal and monetary stimulus. Diminished threat to USD reserve status is also a positive for the USD.

Today’s US data:

June Empire State Manufacturing index falls five points to -9.41 compared to -4.55 in May, a reading of -4.5 was expected. USD remained firm despite report of weaker than expected Empire Manufacturing and the April Treasury flows data which showed China, Russia and Japan reduced holding of US treasuries.

Upcoming US data:

On June 16th, May housing starts will be released expected at 490K compared to 450K last month. May PPI will also be released on June 16th expected to rise 0.4% compared to 0.3% last month along May industrial production and capacity utilization. May industrial production is expected unchanged at -0.5% and capacity utilization is expected to fall to 68.6 from 69.1 last month. On June 17th, May CPI will be released expected to rise 0.3% compared to flat last month. Q1 current account will also be released on June 17th expected at -85 bln compared to -132.8 mln last quarter. On June 18th, initial jobless claims for week ending in 6/13 will be released expected at -592K compared to -601K last week. May leading economic indicators and the June Philly Fed will also be released on June 18th. Leading economic indicators are expected to rise 0.8% compared to 1% last month and the Philly Fed is expected to improve to -16.4 from -22.6.