The U.S. dollar crept higher this morning

The U.S. dollar crept higher this morning following news that U.S. job creation in May was greater than expected, with 157,000 new jobs, further reduced expectations that the Federal Reserve will cut benchmark interest rates this year. The payrolls report was the latest in a string of better-than-expected readings of the U.S. economy which have underpinned the dollar in recent sessions. Additionally, U.S. manufacturing index (ISM) for May rose to its highest since April 2006 with a reading of 55.0. A Commerce Department report showed U.S. core consumer prices, a key measure of inflation which strips out food and energy costs, inched up a less-than-expected 0.1 percent. The dollar remains near 4 month highs against the yen and held to 7-week highs versus the euro. Positive dollar sentiment was supported by comments from Federal Reserve Board Governor Randall Kroszner who said U.S. economic growth should rebound in the course of 2007 and that the main threat to the economy was inflation.

The Euro remained confined to the weaker end of its recent ranges against the U.S. dollar following strong economic data releases out of the U.S. Euro zone policymakers also sounded a hawkish note, with European Central Bank Governing Council Member Klaus Liebscher saying the ECB would remain strongly vigilant and Vice President Lucas Papdemos saying such vigilance is of the essence. The single currency was little changed on purchasing managers' data showing expansion in the eurozone manufacturing sector slipped unexpectedly to its weakest rate in 15 months. Focus remains on the European Central Bank??™s next policy meeting, which gets underway next Wednesday, where expectations remain for a rate hike of 25 basis points.

With no major economic data out of the U.K. today, the British pound edged lower against the dollar following U.S. jobs data. The market is pricing in another U.K. interest rate hike in the summer and a third of economists recently polled by the Reuters news agency believe that rates will rise to 6% percent this year.

The Japanese yen continues to languish near multi-year lows against its major counterparts. Falling victim to 15 and 17 year lows against the AUD and NZD due to strong carry-trade activity. Look for USD/JPY to continue to remain confined to its recent ranges as the currency pair tries to break above 122.30 levels last seen in January 2007.

The Canadian dollar remains near 30-year highs against the USD. Talk of parity with the USD by year end is rampant. The rise in the Canadian dollar all week has been pegged to a combination of strong domestic data, soaring commodity prices and growing expectations for summer rate hikes by the Bank of Canada.

The Australian dollar reached fresh two-week highs against the U.S. dollar as carry trades came back into the picture pushing the Aussie to 15 year highs against the yen. Analysts said the global growth outlook, firmer base metals prices, domestic data pointing to strong first-quarter economic growth, and stability on regional stock markets despite China's gyrations this week, were all helping to boost the Aussie. The data, however, did little to change expectations that the Reserve Bank of Australia will hold interest rates in the short term, but potentially raise rates by the end of the year to 6.50%.

The New Zealand dollar followed in the footsteps of it??™s Aussie cousin, climbing to a one-month high against the U.S. dollar and rose to a 17-year high against the yen, driven by carry trades by investors seeking its high yield. Analysts are starting to price in a rate hike to 8%, possibly as early as next week, due to strong consumer spending, as well as, strength in the housing market. The New Zealand market will be closed on Monday for the Queen's Birthday holiday.

The Mexican peso strengthened to its strongest level in 14 months and stocks rose after a robust U.S. jobs report reassured investors about the strength of the economy in the United States, Mexico's main trading partner.

Indicative Rates: