USD
The dollar fell on Friday after positive news from the E.U summit helped to boost risk appetite leading to rapid gains for riskier currencies but losses for the greenback. Data releases came out as expected with Core Personal Consumption yoy in May falling 2 basis points to 1.8%, from 2.0% in line with expectations and month-on-month rising by 0.1% when a 0.2% increase had been forecast. Personal Income in May remained the same as the previous month in which it showed a 0.2% rise; Personal Spending fell slightly showing no rise when it had shown a rise of 0.1% previously. Overall data had little impact on the dollar as it didn't change the outlook for monetary policy which remains in 'wait-and-see' mode.
EUR
The euro rose after news from the E.U summit trumped (very modest) expectations. Three main measures were agreed, the first was the creation of a joint supervisory scheme for E.U banks and more importantly once set up (probably by the end of the year) for the authorization of direct funding of banks by the EFSF and ESM, without having to involve member states as intermediaries. The second was the pledge to put 120bn into growth projects including 10bn to the European Investment bank (EIB). Finally the third measure related to Spain's banking crisis and was to ensure that the EFSF and ESM did not gain seniority status as creditors compared to all others - as they would normally. This will help ensure Spain can still tap capital markets even after the official bailout, at reasonable rates. Overall the measures were intermediate in importance and can be seen as something of a band-aid solution to soothe bond markets. They are also politically motivated as they successfully avoid state responsibility for bailing out banks which now becomes a European responsibility - leading to more Europe via the back door.
GBP
The pound rose strongly on Friday after risk appetite in general rose following the announcement of new measures announced at the E.U summit on Thursday evening led to increased optimism for the region. Sterling swept aside recent fears of more quantitative easing following a particularly doveish presentation from the governor of the BOE to the treasury select committee earlier in the week. On the data front the Index of Service, which measures activity in the Services sector, which accounts for 77% of U.K economic activity also helped to support the pound. The results for April 2012 showed a 2.0% rise compared with April 2011. However, month-on-month and 3-month-on-3month showed no change - improving on the 3m3m estimate of -0.2%. On the economic calendar next week the highlights are Purchasing Manager indices at the start of the week followed by the BOE rate decision on Thursday.
JPY
The yen weakened against riskier currencies after the announcement of positive measures agreed at the E.U summit helped lift risk appetite. On the data front Manufacturing PMI fell to 49.9 - below 50 and therefore a sign of contraction rather than growth; Household Spending in May rose by 4.0% (yoy) when a fall of 2.5% rise had been expected; the Jobless Rate fell by 2 basis points to 4.4% from April's 4.6% reading; CPI ex-fresh food fell -0.1% when no-change had been expected; CPI Ex food and energy fell -0.6% in line with expectations; CPI in May rose by 0.2% in line with expectations although this was below the 0.4% rise in May 2011. Finally Industrial Production rose by 6.2% in May 2012 compared to 12.9% in May of 2011, which was below expectations of a 6.7% rise. Overall the data was too mixed to be able to draw any conclusions - although the continued fall in inflation and the lower manufacturing PMI leave the door firmly open for the possibility of more QE.
