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Dollar falls on sluggish US economy and potential Greek aid package

Pound: Its always best to kick off the week with a positive opener, so looking at the value of cable should put a smile of sterling sellers this morning. GBP/USD benefitted from global US dollar weakness which came after weak US economic data and continuing global risk appetite. Cable rallied well over a cent in the pounds favour as we broke through the $1.64 handle. However, this is by now means a reason to think the pound will continue to rally against the greenback. The UK economy is not in a good place right now, highlighted by last weeks pur¬chasing managers index (PMI) that said its surveys on manufacturing, services and construction “collectively signalled a slowing in the rate of economic growth”. Its PMI survey on manufacturing indicated that the sector grew at its weakest pace in almost two years in May. Last Fridays Services PMI (the services sector is a real driver for the UK economy) came in below expectations with a number of 53.8, lower than the previous months number of 54.3. For those of us looking for sterling strength against the euro, Monday’s screens will not show for pretty reading. The pound hit a month low this morning as GBP/EUR skirted with falling below the 1.12 han¬dle. A potential ‘get out of jail card’ may have been shown to the Greek economy as the EU and IMF try to sort out the ongoing debt crises which has besieged the country. The euro rallied on this to drag GBP/EUR down even further. Data: Nowt today but due this week: IMF verdict on UK economy and BoE interest rate decision.     

Euro: A rallying single currency has battered the pound and dollar to one side over the weekend and started the week on a bullish charge. The euro touched a month high versus the dollar and a month high versus the pound on prospects officials from the European Union will reiterate their intention to prepare a new aid package for Greece, easing concern over the regions debt crises. EU and IMF officials agreed to pay the next instalment to Greece under last years bailout, paving the way for an upgrade aid package that includes a voluntary role for investors. Greece said a review of the country's economic progress concluded positively. The single currency gained versus most of its 16 major counterparts before a report that may show PPI in the trading bloc held near a 2-1/2 year high in April, backing the case for the ECB to increase borrowing costs later this week. But be aware, this is an ongoing and ever transforming beast. If Greece’s debt worries are sorted out, this may only be for the short term.  An example of this came as Portugal’s governing Socialist Party admitted defeat in the gen¬eral election, which has been blamed on the state of the countries growing debt crises. The single currency did receive a boost after German Chancellor Angela Merkel said the EU is committed to keeping the euro intact. 
No major data. 


Dollar: A role reversal for the greenback has seen June start out badly for the US currency. The dollars best monthly performance since November may prove fleeting as a slowing US economy and falling short term inter¬est rates encourage investors to use the currency to fund investments in higher yielding assets. Bets remain tilted against the buck even after last months 2.3% gain in IntercontinentalExchange Inc’s Dollar Index. While the dollar gained against 14 of the 16 most traded currencies in May, it fell last week after weaker-than-forecast reports on manufacturing, employment and consumer confidence led traders to raise bets that the Fed will keep rates near zero. The prospect of I.R. remaining lower usually leads to that country’s currency trading lower.  
No major data. Speakers: FOMC Plosser and Fisher.    
• Asian equities are all lower, the Nikkie down 1.2%, Hang Seng down 1.3% and the ASX down 0.4%. 


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GBP/USD 1.6425
GBP/EUR 1.1232
EUR/USD 1.4620
GBP/JPY 131.66


GBP/NZD 2.0120
GBP/ZAR 10.9810


GBP/CAD 1.6110
GBP/SGD 2.0210 






  Red-down; blue-up (snap shot)

These rates are for indication purposes only.

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John Paul Georgiou

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