The U.S. dollar is trading lower against all of the major currencies this morning including the Japanese Yen, which failed to make a run for 100 overnight. With no major news behind the pullback, this is likely to be a pause before further gains for USD/JPY. Unlike last week, the foreign exchange market is quieter this week with no major U.S. data released on Monday and nothing scheduled for the next 24 hours. Fed Chairman Ben Bernanke spoke last night and he did not mention the recent improvement in the labor market but discussed exit strategies. He said,“the principle tool to tighten monetary policy will be interest rates and not asset sales, which are late in the tightening process.”

Four Federal Reserve Presidents are scheduled to speak today with Bullard being the only FOMC voter. As a noted hawk, he is typically more optimistic than some of his peers and did not sound overly concerned about the recent non-farm payrolls report. He spoke early this morning to NPR from Berlin and said the March payrolls number could be revised (upwards). He also downplayed the labor participation rate, which fell to a 30 year low by saying that it has been falling since 2000. Bullard still believes the unemployment rate will drop to 7% and sees more willingness within the FOMC to make small adjustments in bond purchases. While we agree that the March payrolls report could be revised, we doubt that it will be revised to the point where labor market concerns are eliminated. The dollar did not rally on Bullard’s comments, suggesting that others investors agree with our skepticism.

Lacker, Lockhart and Kocherlakota are scheduled to speak later today and while they are non-FOMC voters this year, it will still be interesting to see if their views changed after the weak jobs number. If the NFIB small business optimism index can be a guide, the deterioration in labor market conditions is consistent with a pullback in business confidence suggesting the phase of U.S. economic outperformance may be over. U.S. stock futures are pointing to a flat open – given the lack of event risk today, it could be a quiet session with equities driving currencies.

Up North the Canadian dollar held onto its gains after mixed housing market numbers. Housing starts increased more than expected to 184K from 183.2K but building permits dropped to 1.7% from 1.8%. The decline in Canadian job growth had only a temporary impact on the CAD, which is close to recapturing all of last week’s losses.

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