Forex Exchange Morning Report

USDINR- Not Clear (Positive)

EURINR- Will Open Up

GBPINR- Will Open Flat

JPYINR-Will Open Negative 

Market wrap

Sentiment continued to improve on expectationsglobal policymakers are ready to act if needed. A plan to rescue Spain's banking sector without attached austerity conditions (as was the case for Greece, Portugal and Ireland) is being hatched, with the support of Germany, according to a Reuters report quoting unnamed German officials. The ECB left its policy rate unchanged but Draghi later said a few members called for cuts and that it stands ready to act. Fed centrist Lockhart said the level of concern about the economy has increased since the last FOMC meeting and extending Operation Twist is one option available. The above easily outweighed a weak German industrial production report. The US Beige Book of economic conditions again reported moderate growth. The S&P500 is currently up 1.8%, following a 2.4% gain in European stocks. The CRB commodities index is up 1.3% (oil +1.0%, copper 2.5%, gold 0.2%). US 10yr treasury yields extended this week's rebound from 1.56% to 1.67%. The Greek 10yr fell over 200bp.

The US dollar index (DXY) extended the week's decline. EUR initially fell from 1.2500 to 1.2440 after the ECB disappointed those expecting a rate cut, but soon after rebounded to 1.2574 on global policy expectations. USD/JPY rose from 78.80 to 79.28. AUD an NZD outperformed, AUD helped by its GDP surprise and extending to 0.9929 in NY. NZD extended to 0.7701. AUD/NZD initially firmed to 1.2945 before slipping to 1.2880 in NY.

Economic wrap

US Q1 productivity growth revised down from –0.5% to –0.9%, mostly refl ecting the downward revision to output in the second estimate of GDP published late in May. Unit labour costs growth was also revised down from 2.0% to 1.3% , as lower productivity was more than off set by a lower compensation estimate for the quarter.

US Fed beige book showed most surveyed firms reporting modest expansion and steady hiring over May - a slightly more positive picture than painted by the latest dismal payrolls report.

ECB on hold despite a few Council members arguing for a rate cut. Its unlimited short term cash off ering to banks was extended until early next year. The ECB is edging towards lower rates, although the June staff forecast for GDP growth this year was unrevised, albeit with increased downside risks. Draghi said the ECB stood ready ready to act if needed, but insisted that right now a rate cut or further LTRO from the ECB would not substitute for policy action by governments. Westpac's view remains that the growth outlook is weaker than the ECB's persistently unrealistic forecast, and that the case for more easing will quickly build heading into the next quarter. On that point, German industrial production fell 2% in April to be down 0.7% yr, its weakest since early 2010; and Spanish IP slowed at an annual pace of 8.3% yr, its weakest since late 2009.

UK construction PMI slows from 55.8 to 54.4 in April, still higher than at any time in the last nine months of 2011. Also the BRC shop price index rose from 1.3% yr to 1.5% yr in May (sometimes a guide to the direction of movement in the monthly CPI annual pace).