US economic conditions remained an important influence over the week. Housing starts rose to an annual rate of 1.53mn in April from 1.49mn the previous month, but there was a sharp drop in permits to the lowest level for close to 7 years which dampened confidence in a sustained recovery.

The New York manufacturing index rose to 8.0 in May from 3.8 the previous month. The Philadelphia Fed survey also strengthened to 4.2 for the month from 0.2 previously with solid increases in the employment and orders components.

Consumer prices rose 0.4% in April as gasoline prices rose while the core monthly increase of 0.2% cut the annual increase to 2.3% from 2.5% the previous month.

The Euro-zone growth data remained generally firm with first-quarter GDP growth of 0.6% which gave an annual increase of 3.1%.

The ECB retained a tough stance in the latest monthly report with comments from officials continuing to suggest an interest rate increase to 4.0% will be sanctioned at the June meeting.

The dollar weakened to lows just beyond the 1.36 level against the Euro before recovering back to 1.3470 on Friday while the dollar overall secured gains on a trade-weighted index for the third successive week as Treasury bond yields increased.

The yen weakened to record lows against the Euro during the week and also fell to a 3-month low against the dollar at 121.30.

Japanese GDP growth was held to 0.6% for the first quarter of 2007 as firm gains for domestic spending and exports was offset by a drop in capital investment. In this context, there was also a 4.5% drop in machinery orders for March which undermined confidence in the industrial sector.

The Bank of Japan left interest rates on hold at 0.5% following the latest policy meeting. Bank Governor Fukui stated that the bank could still increase interest rates even if consumer prices were falling.

The Chinese yuan trading band widening and interest rate increase on Friday triggered corrective yen gains on Friday with a recovery to 163.0 against the Euro.

Despite market interest in carry trades, the Australian dollar weakened to near 0.82 against the US currency with little in the way of domestic market developments. The currency was undermined by a drop in commodity prices and the Chinese tightening.

UK consumer prices rose 0.3% in April which cut the annual inflation rate to 2.8% from 3.1% the previous month. The core rate fell to 1.8% from 1.9% while the RPI rate dropped to 4.5% from 4.8%.

There was a further drop in unemployment claims for the month while headline earnings growth fell to 4.5% from 4.6% previously with underlying earnings growth rising to 3.7% from 3.6%. Retail sales fell 0.1% in April.

The Bank of England inflation report took a balanced view on growth and expressed major uncertainty over prospects, but stated that the medium-term inflation risks were on the upside. The comments suggested that the Bank expects to increase interest rates again over the next few months.

Sterling weakened to two-month lows against the Euro around 0.6855 and also gradually retreated to lows near 1.9700 against the dollar as the US currency rallied.

The Canadian inflation data recorded an increase in prices of 0.4% for April while core prices rose 0.2% which pushed the annual core rate to the highest level since 2003 at 2.5%.

There was a strong increase in manufacturing shipments of 2.8% for the month, maintaining generally strong growth trends, while retail sales rose 1.0% in March.

The Canadian dollar strengthened to challenge 29-yaer highs near 1.09 against the US dollar following the Canadian retail sales data.

Have a great day and a wonderful weekend.