The US dollar remained supported Wednesday in New York, with EURUSD and USDJPY continuing to trade tame ranges of 1.5861-1.5999 and 102.75-103.78, respectively. EURUSD traded heavy a day after posting a new all-time high of 1.6020. The S&P 500 gained 0.29% and DJIA 0.34%. Gold retreated below 900 before closing at 904. WTI crude oil futures also rebounded, from a low of 116.45 to a high of 118.69. US mortgage applications fell 6.4% w/w in the week of April 18. More worrying for housing investors were fixed mortgage rates reported rising: the 30y by 30bp to 6.04% and the 15y by 33bp to 5.6%. The RBNZ left the OCR at 8.25%, as expected. Its press release noted marked weakening in activity, but still a risk of rising inflation. We see the RBNZ keeping policy on hold for some time.

Ahead today, durable goods are expected to fall in March (UBSe: -0.5%, consensus 0.1%, after -1.1%). Some home sales-related indicators have shown signs of stabilization recently, however, our economists expect new home sales have not quite bottomed yet. Jobless claims are expected to stay high (UBS and cons. expecting 375k). Looking further ahead, our economists expect the April employment report to show a 100,000 decline in payrolls on May 2, with the unemployment rate up another 0.2 percentage point to 5.3%. With our scenario of a shallow recovery into H2 intact, a scenario also priced by equity markets, we are looking for the dollar to rebound, keeping our 1m EURUSD forecast at 1.5500.

Belgium business confidence level, a good gauge for European sentiment, fell to -7.9 from 1.2, disappointing already cautious expectations. Earlier on the day, Eurozone April PMI surveys released this morning showed diverging results for different sectors of the economy. The survey showed manufacturing sector deteriorated to 50.8, worse than 51.6 expected by the consensus and down from 52 in March. The sector was likely affected by the stronger currency, input costs and slower demand. The details of the survey showed that forward-looking components have fallen to very weak levels, below 50. In contrast, services sector activity was marginally higher at 51.9 up from 51.8 previously, and was mainly driven by a large upward surprise in German services PMI. The detail of the services survey showed a pick up in forward looking indicators, however they remain at relatively weak levels. Despite some contrasting result in the services sector PMI, the overall picture suggests that activity growth in Eurozone has probably topped out. Furtherout, we expect such weakening trend to persist. However, without the ECB shifting its focus from inflation to growth the market will unlikely be fully convinced to do a re-pricing for the Eurozone, which in our opinion is long overdue. Our economists continue to expect the ECB's next policy step will be a rate cut, but we see a risk of high commodity prices negatively impacting consumer sentiment in the Eurozone, and this could finally materialize in less constructive data out of Germany. Hence, we will closely follow Thursday's Ifo release and a below-consensus number is likely to weigh heavily on the euro.

The BoE minutes released this morning showed a three way split between the MPC board members in their decision to cut rates by 25bp in April. While the majority voted for a quarter point cut, Sentence and Besley preferred steady rates and Blanchflower voted for a 50bp cut. Those who voted for a cut argued it will help avoid a more pronounced slowdown ahead, while downside risks to inflation in the medium term were more balance now relative to February Inflation Report. Also, an immediate cut would mean less need for deeper cuts later, the central bank said. Today's outcome suggests there is high uncertainty regarding future monetary policy ahead. It will be crucial to see how financial crisis develops globally and in the UK as well as what effect the newly introduced BoE SLS will have. Our economists are looking for the central bank to keep rates on hold at its next meeting in May, but for it to continue lowering rates in June. Upcoming activity surveys and housing market data will likely keep the pound under pressure, should they continue to surprise the market to the downside. Our EURGBP forecasts remain unchanged at 0.78 and 0.76 over 1m and 3m, while we are looking for GBPUSD to come off to 1.93 over 3m. Ahead today, BoE's Andrew Sentence will deliver a speech to the Secretary of Business Economists at the Confederation of British Industry in London. He will likely repeat the hawkish message sent by Besley yesterday (11:00 EDT).

On April 23, Norges Bank increased the deposit rate by 25bp to 5.50%. The decision came in line with market's expectations and the central bank's projection outlined in its latest Monetary Policy Report. The rationale for further tightening was persistent upside risks to inflation stemming from high capacity utilization, a tight labour market and a pick up in wage growth. As outlined in the accompanying statement the central bank said "prospects of higher inflation outweigh weaker global growth in short term". Norges Bank remained on a tightening bias at the time when major economies were hit by adverse effects of the credit crunch. This was mainly due to the Norway's limited exposure to the US subprime market and deteriorating European economies. However, our economists believe that the peak in policy rates has now been reached. They are looking for steady rates until year end and monetary easing to start in Q1 2009. We believe rising crude oil prices and favourable yield advantage will push EURNOK lower. Our 1m and 3m targets for the pair are 7.95 and 7.80 respectively.

The Riksbank left its repo rate unchanged at 4.25%, in line with expectations. The accompanying statement suggested the central bank's monetary policy projection remains unchanged for the remainder of the year. The statement also reiterated inflationary pressures, likely in the wake of the stronger than expected March CPI release and has slightly revised up its growth and inflation forecasts. It now looks for GDP to grow by 2.6% y/y from 2.4% y/y in 2008, although it has revised downwards its 2009 GDP forecast, while it sees CPI rising at 3.5% y/y in 2008 against 3.4% previously. Our economists, however, believe such projection is too optimistic and the central bank will have to ease policy rates in H2 this year. Indeed, by acknowledging that "there are some signs of slackening" in the economic activity, our economists see some tentative steps to softening its stance. Overall, current Riksbank's projection and its focus on inflation are supportive to the krona and EURSEK should continue to weigh down. In the medium term, this will unlikely prove to be sustainable, but for now our projection for weakening Eurozone economy is in line with EURSEK retreating to 9.25 over 3m. In other releases, Sweden's March unemployment rose to 6.3% from 6.1% in February. Ahead on Thursday, March PPI will be released at 7:30 GMT (cons: 0.5% m/m / 3.7% y/y, last: 0.6% m/m / 4.2% y/y)

The RBNZ left rates unchanged at 8.25%, as expected. Governor Alan Bollard said, "Economic activity has weakened more markedly than expected in the Bank's March Monetary Policy Statement". While the bank sounded more dovish than at its last policy meeting, "persistently" high inflation will keep RBNZ on hold for the foreseeable future. Australian Q1 CPI was released on April 23 and at 4.2% y/y (previous 3.0%, consensus 4.0%), consumer prices accelerated to the highest level in more than 17 years, coming in considerably above market expectations. Although inflation reached levels far above the RBA's comfort zone of 2%-3%, our economists note that increasing signs of slowing demand and the neutral minutes from the central bank's last on-hold meeting suggest that a higher result would be required to stir the RBA into a tightening mode again. Going forward we continue to target AUDNZD at 1.21 over three months.