By JONATHAN FUERBRINGER, NYTIMES
Will this be the week that tests the dollar?
Through Friday, the dollar is up 5.4 percent this year against the euro and 5.8 percent against the Japanese yen. The Federal Reserve's broad trade-weighted dollar is up 2.1 percent. While many forecasters still say the dollar will fall again, the rebound has lasted much longer than many people expected.
But with new reports due this week on the United States trade deficit and foreign inflows into American stocks and bonds, there is a chance for news that could weaken the dollar.
The report on the trade deficit, on Tuesday, is expected to show that it grew only slightly in February, to $58.4 billion from $58.3 billion in January, according to Bloomberg News. But the report due Friday on foreign inflows could show a sharp slowdown for February, after a near-record net inflow of $91.5 billion in January.
Even if the trade deficit is virtually stable, a severe slowing of foreign capital could still be bad for the dollar, especially if many speculators are looking for a reason to take profits.
An unexpected jump in the trade deficit with a decline in foreign inflows could be worse, because a growing trade deficit means that flows from abroad have to increase to cover it.
FED-SPEAK
The minutes of the March 22 meeting of the Federal Reserve policy makers will be released on Tuesday. They will be scrutinized to learn just how worried the policy makers are about inflation.
In their statement after the March meeting, Fed officials said, "Though longer-term inflation expectations remain well contained, pressures on inflation have picked up in recent months and pricing power is more evident."
That open concern about rising prices sent the yield of the Treasury's 10-year note to 4.64 percent that day, its highest since June.
But since then, the 10-year note has rallied, and the yield, which moves in the opposite direction, has slipped to 4.47 percent, raising doubts over how worried the bond market is about inflation. The right mixture of hints in the Fed minutes, however, could reignite inflation concerns and send interest rates up again. But with oil prices near record levels, many investors may think that growth will slow enough to offset price pressures. By the way, a rebound in inflation worries — which for bond investors means higher interest rates — could help the dollar if there is bad news on the trade deficit.
OTHER DATA
Retail sales for March will be reported on Wednesday. Forecasters expect a 0.7 percent increase, after a 0.4 percent gain in February. With an increase, retail sales would complete their first six-month stretch without a decline since 1999.
Industrial production data for March, due on Friday, is expected to show a climb of 0.3 percent, the same as in February. The preliminary April reading of the University of Michigan's index of consumer confidence, also due on Friday, is expected to show a decline, to 92 from 92.6 in March.