Treasury - Daily Forex for day 12.05.2007

The dollar firmed to one-month highs against the euro and two-and-half peaks versus the yen yesterday after comments by U.S. Treasury Secretary Henry Paulson overshadowed hawkish remarks from ECB President Trichet and a much wider-than-expected U.S. trade deficit in March. Paulson reminded the markets that a strong dollar was in the interest of the United States, while Fed's policy meeting statement the prior day showed that inflation remained its main concern, somewhat easing speculation of U.S. interest rate cut later this year. On the data front, the U.S. trade deficit widened to $63.9 billion in March from revised $57.9 billion in February. Markets had forecast a gap of $60 billion. In Europe, the ECB left interest rates unchanged on Thursday and suggested it would deliver a hike in June, as expected.

Much faster-than-expected April inflation boosting chances for CNB's interest rate hike as early as this month prevented the Czech crown from falling versus the euro as was the case for other central European currencies. April CPI was up a hefty 0.7% mom, lifting yoy rate to 2.5% from 1.9% in March. Separately, the unemployment rate fell to 6.8% in April from 7.3% in the prior month.