Sterling holding up despite Cameron's confessions

US Dollar:
Trading in the USD was led primarily by risk aversion as investors were once again rocked by events on the world financial markets. Hungary's surprise confession on Friday sparked the wave of equity selling which con¬tinued in Asia and carried over into US and UK trading yesterday. The Dow Jones Industrial Average ended the day with its lowest close in eight months and the FTSE 100 is hovering dangerously close to the 5000 mark. Pointing to the unique demand for safety that avoids sovereign credit concerns, gold would post its biggest rally in a month and come within striking distance of a new record high. FX traders saw risk aversion and distaste for the euro push the Dollar Index to a new 15-month high and EUR/USD with sight of the 2006 low.
DATA— NO Major Data

Pound:
The British Pound pushed to a high of 1.4515 against the greenback during the European trade and also breached 1.2150 against the Euro, the highest we’ve seen since Dec 2008. Sterling strength continued despite Prime Minister David Cameron’s speech yesterday in north London. In it, he said that the U.K’s public finance are “even worse” that the new coalition expected, and said that the debt crisis in Britain “is the legacy of the last government”. As the government aims to cut public spending and lower the budget deficit, tightening fiscal pol¬icy could certainly lead the Bank of England to support the economy over the coming months as Governor Mer¬vyn King expects inflation to fall back towards the 2% target and sees increased downside risks for growth. This will obviously keep GBP interest rate expectation suppressed and could see cable trade lower, possibly sub 1.40 during the later half of 2010. Against the Euro, the single currency has its own set of fiscal issues that should keep GBP/EUR well bid.
DATA— No Major Data

Euro:
Confidence in the Euro zone received a much needed boost yesterday following Hungary’s damaging com-ments on Friday. Investor confidence in the Euro-Zone unexpectedly increased in June after falling at the fastest pace in two-years, with the index rising to -4.1 from -6.4 in May amid forecasts for a drop to -7.0. A separate report showed German factory orders jumped 2.8% in April despite forecasts for a 0.4% decline, while orders advanced 29.6% from the previous year to mark the fastest pace of growth in nearly two decades. During a speech yesterday, European Central Bank President Jean-Claude Trichet said that consolidation in the “old industrialized economies” would support the economic recovery and stated that the euro remains a “sold” and "credible currency” during the meeting. The upbeat tone failed to give any real strength to the single currency as it bounced off the 1.19 level but stalled short of a recovery above 1.20.
DATA—GER Industrial production MoM/YoY (APR)

General: China’s exporters begin to increase salary to combat growing unrest amongst its workforce. Fox-conn, who make computer parts for Apple and Del have doubled the salary of their 800,000 workers to an aver¬age of 300 USD per month. As this continues it will of course create inflationary pressures for the western world.

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GBP/USD	1.4501
GBP/EUR	1.2127
EUR/USD	1.1952
GBP/JPY	132.35
GBP/AUD	1.7708
GBP/NZD	2.1898
GBP/ZAR	11.27
GBP/CHF	1.6845
GBP/CAD	1.5285
GBP/SGD	2.0498
GBP/THB	47.00
GBP/HKD	11.3149 red-down; blue-up (snap shot)