After its steep losses last week, the dollar was higher Monday as it found support against most major currencies and equity prices stabilized. The yen was little changed as US stocks finished mixed following last week's steep equity sell-off. The Australian dollar fell after reaching resistance and a marginally new 25-year high of 0.9666. The Reserve Bank of Australia is expected to maintain its key interest rate at 7.25%.

The USD/CAD rose the most since March on concerns the US economic slowdown has spread to Canada. The pair has traded sideways this year. There are strong resistance at the 1.03-handle and support in the 1.00-area.

Financial and Economic News and Comments

US & Canada

The Chicago purchasing managers' index unexpectedly rose to 49.6 in June from 49.1 in May, the National Association of Purchasing Management-Chicago said. A reading below 50 indicates contraction. The measure of new orders fell to 52 in June, signaling smaller gains, from 56.1 in May. The measure of prices paid for raw materials declined to 85.5 from 87.5. Overall, the June PMI rise eases concerns the slump in manufacturing was worsening; nevertheless, still indicating slow manufacturing growth in the Chicago area.

The Dallas Fed production index fell to 0.0 in June from 5.5 in May, while the general business activity index dropped to -24.1 from -10.3, the Federal Reserve Bank of Dallas said. A reading above zero indicates positive activity, while a negative reading signals a contraction. Inflation pressures remained intense. The index of prices received for finished goods slid to 33.4 in June versus May's 34.2, while the index of prices paid for raw materials rose to 72.2, from 67.3. The employment index stood at -1.9 in June, from 0.9 in May, indicating hiring in the Dallas Fed district contracted at a quicker pace.

Canada's gross domestic product grew a more-than-expected 0.4% m/m to C$1.23 trillion ($1.22 trillion) in April driven by a 1.9% rise in manufacturing, the first GDP expansion in three months, after dropping 0.2% m/m in March and 0.3% m/m in February, data from Statistics Canada showed. The GDP grew 1.2% y/y.

Europe

The euro-area inflation rate rose to a more-than-expected 4.0% y/y in June, the highest in more than 16 years, from 3.7% y/y in May, according to a flash estimate by Eurostat, adding to pressure on the European Central Bank to raise its benchmark interest rate even as economic growth cools.

UK productivity growth rose 0.6% y/y in Q1 2008, down from 1.6% y/y growth in Q4 2007, the Office for National Statistics said.

The UK consumer confidence index fell 5 points to -34 in June, the lowest since March 1990, GfK NOP Ltd. reported.

UK property prices dropped 1% m/m in June, the most since Hometrack Ltd.'s housing index began in 2001.

UK mortgage approvals dropped to the lowest in at least nine years in May, signaling the UK housing slump is deepening. Banks granted 42,000 loans for house purchase in May, compared with 58,000 in April, the Bank of England reported.

The world's central banks should worry about accelerating inflation now, the Bank for International Settlements said. "Inflation is actually rising, while significantly slower growth remains only a possibility in many parts of the world," the BIS said in its annual report. "In general, this should imply a bias of global policy towards being much less accommodating."

Asia-Pacific

Japan's housing starts, hit hard by a regulatory change last year, fell 6.5% y/y in May, lower than expected, data from the Ministry of Land, Infrastructure and Transport showed. It was the 11th straight month of falls. Orders received by major Japanese construction companies fell 25.2% y/y in May to ?782.9 billion ($7.37 billion).

People's Bank of China Governor Zhou Xiaochuan said he can't rule out raising interest rates to curb inflation. "It's always possible, we don't exclude any possibility," Zhou said, echoing similar statements in March and April.

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