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Lehman Brothers downgraded continental European stocks to "underweight" from "overweight," while raising U.S. equities to "overweight" from "underweight."
For the week ending Friday, June 6, 2008, the markets finished in the red as the CBOE Volatility Index (VIX) again crossed above the 20 threshold and oil surged. Stocks were impacted by continued economic concerns, renewed trouble in the financial sector, and a record spike in crude oil on Friday. Although it was a negative week for the markets, the Dow managed a 200+ point rally on Thursday for the first time since 4/18, after retailers posted better than expected same store sales.
The dollar dropped across the board Friday, after data showed the U.S. economy lost jobs for a fifth straight month and the unemployment rate shot up to its highest in more than 3-1/2 years.
The euro rebounded from three-week lows against the dollar Thursday after European Central Bank President Jean-Claude Trichet said euro-zone interest rates could rise as early as next month.
The European Central Bank's 10th anniversary may have been marred by high inflation, but the euro's show of strength over the past nine months has been impressive.
The dollar was mixed Wednesday as a report on the U.S. service sector indicated a less severe downturn and retail sales in Europe dipped unexpectedly.
The European Central Bank's inability to raise rates may mean the time for a jump back into the dollar has arrived, as the full effects of the credit crunch still have to be felt in Europe, analysts told CNBC.com.
The European Central Bank's hawks must be aching to hike rates, but they will likely sit on their hands again and leave rates at 4 percent despite inflation rising to 3.6 percent in May.
The dollar advanced broadly on Tuesday after Federal Reserve Chairman Ben Bernanke warned about the inflationary impact of a weak currency, suggesting the central bank is not likely to cut interest rates further this year.
Sure, some analysts are skeptical about the relationship between oil and the dollar. The conventional wisdom, though, is that the weaker dollar has encouraged investors to buy dollar-denominated commodities to hedge inflation and has contributed in some part to rising oil prices.
The dollar fell against the yen and gave up much of its gains versus the euro Monday after rating agency Standard & Poor's downgraded U.S. financial sector firms.
Sky-high fuel and food prices crashed the party when finance ministers flocked to Frankfurt to celebrate the inflation-fighting European Central Bank's 10th birthday on Monday, a milestone in Europe's monetary union.
For the week ending Friday, May 30, 2008, the markets finished up, with all major indices increasing ~1.3% or higher for the week. Only the Dow declined for the month, shedding 1.42%. The NASDAQ reached its third consecutive monthly gain , up 4.55% for the month. The markets were encouraged by better than expected earnings from retailers and strong results from Dell. U.S. GDP for 1Q also helped lift stocks up, as it rose 0.9% at an annual rate , better than the previous estimate. Crude Oil also retreated to lower levels.
The dollar fell to session lows versus the euro and traded flat against the yen as investors took profits ahead of the weekend after recent strong gains in the U.S. currency, traders said.
On the verge of the European Central Bank's 10th anniversary, the news on inflation doesn't look good. Against the bank's target of "below but close to" 2 percent, euro-zone prices rose 3.6 percent in May, compared with the year ago, back to a historic high, data showed on Friday.
The U.S. dollar extended its gains and traded at session highs against the yen and the euro on Thursday, as U.S. stocks added to gains with oil prices pulling back from recent highs.
The dollar rose broadly after a report showed new orders for U.S. durable goods fell by less than expected in April, supporting the view the Federal Reserve may keep interest rates on hold or even raise them by the end of the year.
The dollar rose broadly Tuesday after oil prices fell and a report showed an unexpected rise in U.S. new home sales in April, boosting expectations the economic slowdown is not as bad as feared.
European Central Bank head Jean-Claude Trichet said on Monday that financial markets were experiencing an "ongoing correction" and repeated that the G7 was concerned about excessive dollar volatility.
The dollar held its ground on Monday, taking advantage of the ultra-thin volumes owing to U.S. and UK market holidays to arrest its decline of the last three weeks and eke out slender gains against a basket of major currencies.