Dollar fell sharply against the euro on Friday, extending the previous days’ losses, after the Bureau of Labor Statistics of the US Labor Department reported a more-than-expected rise in the unemployment rate in May to 5.5%, against the expected 5.1%. The total number of unemployed persons increased by 861,000 to 8.5 million in May, after seasonal adjustment, as per the government's Household Survey Data. However, the non-farm payrolls fell by 49,000.

Also according to the release by US Labor Department on Thursday, initial claims for unemployment benefits in the US fell by 18,000 to 357,000 in the week ended May 31. The four-week average of initial claims also dropped, falling by 2,750 to 368,500. Continuing claims fell by 16,000 in the week ended May 24, dropping to 3.09 million. But the four-week average of continuing claims rose to 3.08 million, up 15,250.

The euro had strengthened after the European Central Bank President Jean-Claude Trichet hinted at a possible future interest-rate hike, amid surging inflation pressures in the euro-zone. According to a preliminary estimate by the statistical agency Eurostat, the consumer inflation hit an annualized pace of 3.6% in May, well above the ECB's target of just below 2%.

Eurostat data on Tuesday had shown a slight upward revision of the first-quarter euro-zone gross domestic product, according to which the economy grew by 0.8% against the previous estimate of 0.7%. Year-on-year growth was unrevised at 2.2%.

The ECB on Thursday chose to leave its key interest rate unchanged at 4 %.

The Fed chairman Ben Bernanke in a speech last week had expressed concerns over the in weakness in dollar, and cited it was contributing to an unwelcome rise in US inflation. His comments generated expectations that the Fed might adopt steps to guard against inflation risks.

The Institute for Supply Management's manufacturing index for May rose to 49.6% from 48.6% in April, against the consensus expectation of 48.7%.

According to the data released by Commerce Department on last Thursday, real gross domestic product of the US increased at a 0.9% annual rate in the first three months of the year, slightly faster than the previous estimate of 0.6%.

Better-than-expected survey on US durable goods orders also underpinned the greenback. Data from the Commerce Department showed new orders for US-made durable goods dropped less than expected 0.5 % in April, against the expectation for a 2.8% drop.

The recent data from various sectors in the US have given mixed hints regarding the economy.  

The minutes from the Federal Open Market Committee's April 29-30 meeting had invigorated worries about the economy. The minutes released last week revealed that the Fed sharply increased its inflation outlook for the current year and downwardly revised the forecast for economic growth for 2008.

In spot, dollar closed at 1.5776 (1.5584) against the euro, after trading in the range 1.5570 – 1.5777

Last day, DEUR June traded in the range 155.70 – 157.64 and closed at 157.64.  

TECHNICAL OUTLOOK (Intra-day)

DEUR (June)    - Bullish above 157.70; bearish below 157.24

DATA TO WATCH

2008 June 9