Dollar Stronger Ahead of China-US Summit in Washington

With absolutely no economic data on the schedule, the US dollar showed unabashed strength throughout the day against the majors as indications emerged late last week that consumer confidence remained high and growth in the manufacturing sector was healthy.

Furthermore, the G8 meeting of central bankers and finance ministers in Germany held over the weekend yielded no market moving commentary, as hedge fund regulation served as the dominant theme once again. Starting tomorrow, however, things could get a little more exciting for US dollar trade. First, it will be interesting to see if the People?s Bank of China?s decision to raise interest rates and widen the daily trading band for the yuan managed to placate US officials - at least temporarily - at the China-US economic summit in Washington that starts tomorrow. The action by the PBoC is unlikely to have had a large impact on Treasury Secretary Henry Paulson?s push for flexibility on the yuan, especially since the currency had never moved by the maximum amount allowed within the prior range of 0.3 percent, leaving little potential for a rapid appreciation of the Chinese currency. The other major event risk for the US this week is on Thursday, as Durable Goods are estimated to weaken during the month of April. While this is in and of itself bearish for the dollar, there is major downside potential for the release, especially the ex-transportation index, given the dismal Advance Retail Sales report for the same month. Add the atrocious April figures from retailers such as Wal-mart to the mix, and the outlook for the sector appears even drearier.