US Dollar - Bernanke and Retail Sales to Drive Activity This Week (page 2 of 2)

The outlook for monetary policy has long been a primary driver for sterling strength and weakness. This week's inflation report is even more important since the Bank of England did not issue a statement after leaving interest rates unchanged last week. Traders will be very keen to hear the central bank's updated take on the outlook for the economy and monetary policy. Aside from PPI, the pound is also under pressure after Vodafone announced plans to buy 67 percent of India's Hutchinson Essar for $11 billion.

Japanese Yen - Just from looking at the mixed performance of the Japanese Yen today, it is clear that the G7 meeting was a non-event. It is important to note that Japanese markets were closed for the past 24 hours so the first reaction to the G7 from Japanese traders will not be until tonight. Even though there was no official criticism about yen weakness, the G7 did acquiesce to European pressure by commenting on the carry trade indirectly. The group acknowledged Japan's economic recovery and expressed their confidence that market participants will eventually take this into consideration. This was not enough to cause carry trade liquidation and instead will shift the market's focus to next week's Bank of Japan monetary policy meeting. The market will look at this week's incoming data and assess how that could impact to BoJ's decision.

Commodity Currencies (CAD, AUD, NZD) - The commodity currencies all weakened today on the combination of lower oil prices and disappointing data. The drop in oil was triggered by comments from Oil Minister Ali al-Naimi who said that OPEC may not need further production cuts as the market remains supported in the near term. The statements were coupled with announcements by one of the largest distributors in Saudi Arabia on their intentions to keep supplies robust to the Asian countries, undermining the previously announced cuts by the trade group. As a result, traders taking advantage of the correlation between crude oil and the CAD, pared back positioning and took the currency pair higher off of the 1.1700 support. In the Australian dollar, Aussie buying waned in the session following a slightly more dovish monetary report by the Reserve Bank of Australia. Citing that the economy was moving along as expected, monetary officials additionally revised their inflationary forecasts lower to rise at a 2.75 percent pace in 2007. Ultimately, the reports are likely to keep downward pressure on the pair until the NAB business confidence report is released tonight. Expectations are for the survey to rise incrementally, which may serve as some support for the currency in the near term. New Zealand producer prices fell 0.3 percent on an input level and 0.5 percent on an output level. The softer inflationary pressures should reduce the likelihood of a rate hike by the Reserve Bank of New Zealand next month.