Currencies
The euro rallied amid rising expectations that the Fed will cut interest rates at their meeting on June 24th and 25th. The dollar slumped after U.S. consumer confidence unexpectedly dropped. Although the confidence readings for June remain comfortably above wartime lows, the setback may create some jitters at the Fed. Observers said the Fed had been basing its optimism on increases in forward-looking indicators. The dollar sank against most other currencies. The logic of market players ran something like this: A decline in consumer confidence may lead to a drop in spending, which would in turn lower expectations of higher interest rates and yields on investments. Benchmark interest rates near 1 percent don't encourage foreign investors to buy assets especially when a better return is available elsewhere. It should be noted that consumers often say one thing and do something quite different.

The dollar also slipped against the yen last week. Market players have been trading yen uneasily given the Bank of Japan's use of covert intervention to stabilize the currency. Investors will have to wait until the end of the month to find out how active the Bank of Japan has been during June. In May, it spent a record ¥3,900 billion in stemming the yen's appreciation.

The dollar's weakness also took it to a seven-year low against the Canadian dollar, despite a weak Canadian dollar and the prospect of slower growth. The loonie's strength is a story of U.S. woes, and the closer we get to Fed decision day, the more the money could flow to Canada. The Canadian dollar has benefited from the higher yields offered on its bonds and the fact that the central bank has raised rates twice this year.

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