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The US dollar failed to hold onto last week’s gains as foreign economic data brightened the outlook for the corresponding currencies and spurred downward pressures for the troublesome dollar. As a result, the US dollar took the biggest plunge against the Australian dollar as input prices rose to its fastest pace in almost a decade, and was followed by the New Zealand dollar as the pair climbed to 0.793. The low yielding Swiss franc advanced against the weakened dollar as rising inflationary pressures sparks bets that the SNB may call for a rate increase, with the Yen picking up as well as the pair traded in the 103.2 range. Against the European currencies, the dollar weakened against the euro to 1.591 as ECB’s Liebscher reiterated the central bank’s inflation-targeting policy, while the British pound actually plunged against the US dollar as the pair retraced to 1.980. The Canadian dollar also posted a loss against the US dollar as market participants raised bets of a 50bp rate cut by the Bank of Canada tomorrow.

On the economic front, the Bank of England has followed the Fed’s approach in easing the mounting turmoil in the credit markets as the central bank looks to exchange nearly $100 billion worth of 9 month UK Gilts for AAA-rate mortgage backed securities. On the other hand, the European Central Bank continued to focus on upside inflationary risks as ECB member Liebscher supported the central banks hawkish stance on inflation, and went on to say that current market conditions have left the ECB with no room to cut rates. Amid the rise in global inflationary pressures, OPEC President Chakib Khelil announced that they will keep oil productions at its current level in the midst of record high prices - stating that the current production level is in line with demands.

Increased volatility shook the securities market as Bank of America post a 77 percent decline in first quarter profits, with National City adding to the mix as they approved the sale of a $7 billion stake at a 40 percent discount. As a result, the DJIA fell 24.34 points to 12,825.02 points, with Caterpillar and AIG posting the biggest losses. The broader S&P500 shaved 2.16 points to hold off at 1,388.17 points amid 194 stocks hitting a new 52 week high.

Demands for US Treasuries declined as global stock markets advanced, and led many investors to leave the safe haven of risk free bonds. As a result, the benchmark 10-Year yield rose to 3.720 percent from 3.708, while the 2-Year yield jumped to 2.172 percent from 2.138 percent.

Looking ahead, all eyes will be focused on the Bank of Canada’s rate decision tomorrow at 13:00 GMT, with market participants beginning to price in a 50bp rate cut by the central bank. Following the rate decision, our attention will turn to fresh US housing and manufacturing data due out at 14:00 GMT, and will be followed by the ABC Consumer Confidence index at 21:00 GMT.