The U.S. dollar remained fairly stable against the Canadian dollar Thursday morning and was trading at 1.2475 by 11 a.m. A report, released by the U.S. government, showed an annualized increase in labour costs of 3.3 percent during the first quarter. The data followed an increase of 7.7 percent during the fourth quarter last year and was higher than the median forecast of 2.1 percent in a survey, conducted by a leading news agency. Thursday's labour cost data may result in higher consumer prices, which would lead to increased inflationary pressure. Such circumstances would be supportive of further interest rate hikes by the U.S. Federal Reserve Bank, which will hold its next interest rate meeting on June 30.

The number of Americans filing for initial unemployment benefit claims rose by 25,000 to 350,000 last week. The U.S. Labour Department, however, stated that the increase was influenced by temporary layoffs in the automobile industry. The average number of initial unemployment benefit claims only reached 328,000 so far this year compared to 343,000 in 2004.

Canadian interest rates are also poised to rise "over time", according to Bank of Canada Governor David Dodge, who reinforced the banks' position on this topic Thursday morning. His statement, however, did not provide any indication when an increase in interest rates would occur. The bank's overnight lending rate currently stands at 2.5 percent �?unchanged since October 2004.

The euro regained some ground against the Canadian dollar Thursday morning, following its steep decline since last week. By 11 a.m. the euro was trading at 1.5325. Thursday's recovery in the euro came in part due to remarks by Dutch central bank governor Nout Wellink, who stated that a possible disintegration due to the recent referendums in the European Union is "utter nonsense". In its latest interest rate decision Thursday morning, the European Central Bank (ECB) rejected earlier calls by leading European politicians and left its overnight lending rate unchanged at 2 percent. Some European leaders had urged that bank to lower interest rates in order to spur economic growth. Only on May 30, however, ECB President Jean-Claude Trichet reported that the current level of interest rates was "extremely favourable" to economic growth.