US economic conditions were the dominant influence over the week as markets continued to monitor yield trends.

The US ISM index for the manufacturing sector recovered to 54.7 in April from 50.9 the previous month with the orders, employment and prices indices all rising strongly. There was a similar result for the services-sector index with an increase to 56.0 for April from 52.4.

The Chicago regional PMI index was more subdued for the month while there was a 3.1% increase in factory orders. The ADP report recoded a subdued 64,000 increase in employment for April which ensured some caution ahead of the monthly payroll data. Jobless claims, however, fell to 305,000 in the latest week, a four-month low.

There was an 88,000 increase in non-farm payrolls for April while unemployment rose to 4.5% from 4.4%.

The core PCE inflation index was unchanged in March with the annual rate dropping to 2.1% from 2.4%. The first-quarter increase in unit labour costs was held to 0.6%, but the increase for the fourth quarter of 2006 was revised up to 6.2% from 3.8%. Hourly earnings rose 0.2% in April in the monthly payroll data.

The Euro-zone PMI indices for the manufacturing and services sectors edged lower for April, although they continued to record a firm level of activity. Annual money supply growth also remained robust at over 10%.

There was a further reduction in German unemployment for April, but the 9,000 decline was much lower than the average monthly drop of over 50,000 seen over the previous few months.

European officials remained generally calm over Euro levels in comments during the week, although the ECB did state that the exchange rate would play some part in the interest rate setting process.

The US currency again tested record lows early in the week before staging a recovery after the US economic data was generally stronger than expected. The Euro found good support below 1.3550 against the US dollar as US currency sentiment was still very fragile.

The latest UK consumer data recorded an improvement in confidence for April while there was a strong reading in the latest CBI retail survey with the headline reading at a 3-year high.

Although activity was firm, the CIPS indices for the manufacturing and services sector both declined slightly over the month while the services-sector inflation component fell to a four-month low.

Markets remained very confident over a May Bank of England interest rate increase, but expectations over increases beyond that were scaled back slightly.

Sterling depreciated against the Euro during the week with lows around 0.6835. The UK currency was unable to hold above the 2.00 level against the dollar and weakened back to 1.9850 as the US currency gained ground before a Sterling recovery after the payroll data.

Swiss volatility levels increased over the week. There was a 1.1% increase in Swiss consumer prices for April with the annual inflation rate rising to 0.5%. The monthly increase in prices was the strongest for over 15 years as import prices rose strongly.

The Swiss franc weakened beyond the 1.65 level against the Euro before recovering ground and was again unable to break through the 1.20 level against the dollar.

The Australian Reserve Bank held interest rates at 6.25% following the latest policy meeting. The bank lowered its core 2007 inflation target to 2.5% from 2.75% in the latest monetary report which curbed expectations over higher interest rates later this year.

The PMI indices edging stronger for April while the March trade deficit rose to AUD1.62bn from AUD0.77bn in February on a temporary decline in iron-ore exports.

The Australian dollar was unable to hold above the 0.83 level against the US dollar during the week and temporarily weakened back to below the 0.82 level in local trading on Friday.

Have a great day and a wonderful weekend.