Data released on Friday morning showed that the U.S. trade deficit narrowed from $58.9 billion in January to $58.4 billion in February, which was a better outturn than most market participants had expected. However, neither the trade data nor the PPI data had little noticeable effect on dollar exchange rates. Rather, the focus was on the G-7 meeting. Although some market participants had speculated that the G-7 finance ministers and central bank governors would mention displeasure with the weakness of the Japanese yen, the communiqu?© made no mention of the Japanese currency. The omission indicates that concerted central bank intervention to prop up the yen is not imminent, giving traders the green light to sell the Japanese currency.

However, the dollar continues to sink lower versus most other major currencies. Indeed, the greenback is currently trading at its lowest level against the euro since December 2004, and it has fallen to a 15-year low against the British pound. And with a slew of U.S. economic data on the docket, this could be a pivotal week for the dollar. Data on retail spending in March, the Empire State index of manufacturing activity, and international capital flows data will print this morning. Highlights of the rest of the week include CPI and housing starts data tomorrow, and the Philly Fed index on Thursday. Data that point to slower growth and/or waning inflationary pressures will probably lead to further dollar depreciation. On the other hand, the dollar has fallen a fair amount in a relatively short period of time so stronger-than-expected data could give the greenback some reprieve. U.K. data this week on consumer prices (tomorrow), the labor market (Wednesday), and retail sales (Thursday) will also be important determinants of the near-term direction of sterling.