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• Jun, 01 Euro Extends Losses as Unemployment Pushes Higher, British Pound Pares Decline
• May, 31 Euro Weighed by ECB Comments, British Pound Bounces Back
• May, 28 U.S. Dollar Mixed Ahead of Holiday Weekend, Personal Spending to Increase For Sixth Month
• May, 27 Euro, British Pound Advance as Market Sentiment Shifts
• May, 26 British Pound Pares Decline as OECD Sees Scope For BoE Rate Hike, Euro Weakens For Third Day
• May, 25 Euro, British Pound Falter Despite Improvements in Fundamental Outlook
• May, 24 U.S. Dollar Rallies Across the Board, Benefitting From Safe-Haven Flows
• May, 21 Euro, British Pound Pare Overnight Advance on Uncertainties Surrounding Fundamental Outlook
• May, 20 Euro, British Pound Pare Previous Day’s Advance as Market Sentiment Falters
• May, 19 Euro Weakens as Germany Bans Short Selling, British Pound Extends Decline on BoE Minutes
• May, 18 British Pound Pulls Back as BoE Governor King Maintains Cautious Outlook, Euro Extends Advance
• May, 17 British Pound, Euro Extend Decline as Mounting Uncertainties Weigh on Market Sentiment
• May, 14 Euro Slips to Lowest Level Since November 2008, British Pound Poised to Test Monthly Low
• May, 13 Euro Weighed By Dovish Comments From ECB, British Pound Extends Decline Amid
• May, 12 British Pound Loses Ground As BoE Holds Cautious Outlook, Euro Advances as 1Q GDP Tops Forecast
• May, 11 Euro Weighed by Skepticism Surrounding EUR 750B Rescue Plan, British Pound Pares Advance
• May, 10 Euro Extends Advance on EUR 750B Rescue Package, British Pound Halts Six-Day Decline
• May, 07 British Pound Weighed by Hung Parliament, Euro Halts Decline as Germany Approves Greek Bailout
• May, 06 Euro Slips to Fresh Yearly Low Ahead of ECB Rate Decision, British Pound Breaks Lower as U.K. Election Kicks Off
• May, 05 Euro Extends Two Day Nose Dive Amid Greek Debt Contagion Fears, British Pound Halts Three Day Decline

The British Pound pulled back from a weekly high of 1.4765 as investors scaled back their appetite for risk, and the exchange rate may continue to trend lower during the U.S. trade as market sentiment falters.

Talking Points
• Japanese Yen: Loses Ground Against the Majors
• Pound: Mortgage Approvals Expand for Second-Month
• Euro: Producer Prices Rise More-Than-Expected
• U.S. Dollar: Pending Home Sales on Tap

Meanwhile, the European Commission proposed to increase the supervision of credit rating agencies as they seek “increased transparency” for those firms, and said they will announce a detailed outlook of the plan later today as policy makers try to contain the debt crisis.

Nevertheless, a report by the Bank of England showed mortgage approvals in the U.K. increased 49.9K in April to top expectations for a 49.5K rise, while consumer credit unexpectedly slipped GBP 0.1B during the same period to mark the first decline since November. Meanwhile, a separate report showed construction expanding at the fastest pace since September 2007, with the PMI reading increasing to 58.5 in May from 58.2 the previous month, and conditions are likely to improve going forward as the expansion in monetary and fiscal policy continues to feed through the real economy. However, as households continue to face tightening credit conditions paired with the deterioration in the labor market, the ongoing weakness in the private-sector could lead the BoE to support the economy throughout the second-half of the year as the new government pledges to cut the budget deficit and scale back on public spending. As a result, investors are pricing a 3% chance for a 25bp rate hike this month according to Credit Suisse overnight index swaps, and Governor Mervyn King may retain a dovish outlook for future policy as the central bank aims to encourage a sustainable recovery.

The Euro was little changed from the previous day as the exchange rate held within an 85pip range overnight, and the EUR/USD may continue to hold steady heading into the North American session as it maintains the narrow range carried over from the previous week. Meanwhile, producer prices in the Euro-Zone increased at an annualized pace of 2.8% in April to mark the fastest pace of growth since 2008, and rising price pressures could lead the European Central Bank to shift its economic assessment for the medium-term as rising commodity prices continues to stoke inflation. As the governments operating under the single-currency struggle to manage their public finances, the Governing Council has certainly taken unprecedented steps to support the economy, but mounting price pressures may lead the ECB with little room to maneuver as it maintains its primary mandate to ensure price stability.

U.S. dollar price action was mixed across the board, with the USD/JPY rallying to a high of 92.03, and the greenback could face increased volatility during the North American trade as economic docket is expected to reinforce an improved outlook for future growth. Pending home sales in the world’s largest economy is expected to expand another 5.0% in April after climbing 5.3% in the previous month, while domestic vehicle sales are projected to rebound to an annualized pace of 8.90M in May as households increase their willingness to spend. At the same time, another monthly contraction in the Challenger job cuts survey would certainly bode well for Friday’s non-farms payrolls report as market participants anticipate the U.S. labor market to add a whopping 513K jobs in May, while the annual rate of unemployment is expected to drop to 9.8% from an unexpected rise in 9.9% in April.

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To discuss this report contact David Song, Currency Analyst: dsong@fxcm.com

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