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Is the Euro dying a slow death

Pound: UK May inflation data came in bang on line with market expectations with CPI rising 0.25% m/m and 4.5% y/y, compared with the enormous 1% m/m gain seen in April  but it matched the y/y rate. Just before the figures were announced  a rumour swept the market that the figures were likely to come in softer but as we now know this proved to be unfounded. These figures remain in line with the expectations of the central bank’s gov¬erning council who still suggest that CPI will peak around 5%. Today sees the release of unemployment claims figures and these are expected to increase another 7k in May following the 12.4k increase we saw in the previ¬ous month. The ongoing weakness in the labour market is likely to weigh on the pound as the UK faces a slow¬ing recovery. All of these factors ( and many more ) looks like leaving the MPC with no option but to adopt the wait-and –see stance. While the BOE’s Weale has been out in recent day’s with some hawkish comments about inflation he is beginning to look more and more like a lone soldier as his fellow hawks disappear. With the bal¬ance now strongly in favour of the dovish members it looks likely that the MPC will weather the storm of  rising CPI and keep rates low. DATA: 9.30: Claimant Count Change 7.1k       
Euro: The Euro weakened for the first time in three days against the dollar as European Union officials strug-gled to break a deadlock on a second Greece rescue plan. There was an emergency session of finance minis¬ters in Brussels yesterday but they failed to reconcile a German led push for bondholders to shoulder part of the cost of a new Greek aid package with the European Central Bank warning that the move might constitute the area’s first sovereign default. Personally speaking it still baffles me as to how the Euro remains at the levels where it is now and a article in the Guardian just reinforces my views. The article focused at credit default swaps (CDS) spreads for the peripheral euro area countries. CDS are a form of insurance against default or restructur¬ing. The higher the spread the more likely investors think a sovereign default is. In the first week of June five year spreads for Greece stood at 1495 basis points, Portugal were at 708 and Ireland were at 650. Now lets compare this to Iceland who stand around the 200 level, a country that underwent a private default only two and a half years ago. To me it does not make pretty reading for the Euro.No major data.
Dollar: We saw a nice day for the dollar yesterday as it gained against both the Pound and the Euro. Retail sales figures fell less than projected in May, showing consumers were weathering elevated gasoline costs. It looks like the dollar is poised to rebound on safe-haven demand with S+P stock futures pointing firmly lower ahead of the morning session in Europe having dropped as much as 0.4 percent overnight. It looks like the up¬swing in optimism noted over the past two days is receding after China raised bank reserve requirements to a record high in an effort to contain inflation while the continuing problems in Europe can only help the Green-back. Data 13.30 Core CPI m/m 0.2%
Statements from the RBA Governor raised expectations of further rate increases in the near term due to higher prices and a more robust Australian economy.


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GBP/USD                        1.6355

GBP/EUR                        1.1380

EUR/USD                        1.4370

GBP/JPY                         131.80

GBP/AUD                        1.5300

GBP/NZD                         2.0060

GBP/ZAR                         11.0730

GBP/CHF                         1.3900

GBP/CAD                        1.5825

GBP/SGD                        2.0160

GBP/THB                         49.82

GBP/HKD                        12.7405

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These rates are for indication purposes only.


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