FX Overnight Briefing

Financial News - US & Far East

• Blue chips brush off tech
• The dollar rose after comments
• Oil price declined on Saudi call for OPEC meeting
• Bernanke watchful of inflation risks from energy
• The dollar jumped to a three-month high against the yen

Today's Main Events

• SEK Consumer Price Index
• NOK Consumer Price Index
• USD Trade Balance

American Timezone:

Blue chips brush off tech

Stocks struggled to hang onto gains on Monday, with financial shares weighed down with concerns over Lehman Brothers Holdings Inc. offsetting relief over oil prices, which fell 3% after reaching a record above USD 139 last week.

Technology shares were kept under pressure ahead of a quarterly update from chipmaker Texas Instruments Inc.

USD rose after comments

The dollar rose against the euro for the first time in three days as U.S. policy makers indicated they're concerned about the currency's 7 % drop this year.

The U.S. currency strengthened from a sixweek low as Treasury Secretary Henry Paulson said in an interview that he would never rule out currency intervention and Federal Reserve of New York President Timothy Geithner said that the central bank is watching the dollar very closely.

Geithner also said that tighter monetary policy may be needed globally. US interest rate futures are now fully pricing in a 50 bps increase by year end.

Oil declined on Saudi call for OPEC meeting

Crude oil fell more than USD 2 a barrel as Saudi Arabia's oil minister, Ali al-Naimi, called for a meeting of oil producing and consuming nations to discuss how to deal with record prices..

Far East Timezone:

Bernanke watchful of inflation risks from energy

Federal Reserve Chairman Ben Bernanke on Monday signalled the central bank would act to strongly resist rising inflation, as energy costs soar into the stratosphere.

Bernanke also played down a May surge in the unemployment rate from 5.1 % to 5.5 %, the biggest jump in 22 years, saying the risks of a substantial downturn in the U.S. economy had receded.

His remarks suggest inflation is featuring more prominently on the Fed's radar screen, indicating policy-makers have little intention to cut interest rates further. Average gasoline prices in the United States have just surpassed USD 4 a gallon for the first time.

Bernanke's inflation warning, the third in just one week, seemed to bring him closer to the more inflation-leery faction of the policysetting Federal Open Market Committee, led by the presidents of the Dallas and Philadelphia Federal Reserve Banks, Richard Fisher and Charles Plosser.

Fisher told CNBC on Monday that a weak dollar could lead to a vicious cycle of higher inflation and weaker growth.

Still, analysts have been skeptical that tough talk on price growth would be followed up with real action in the form of higher interest rates.

The dollar jumped to a three-month high against the yen

The dollar jumped to a three-month high against the yen on Tuesday after Federal Reserve Chairman Ben Bernanke said the central bank would strongly resist an erosion in inflation expectations, convincing more investors that rate hikes could come this year.

Bernanke also said the latest surge in energy prices is adding to the dangers from inflation and that the risk of a substantial downturn in the U.S. economy has receded, sparking broad dollar gains and sending U.S. bond yields soaring.

U.S. Treasury Secretary Paulson declined on Monday to rule out intervention in the foreign exchange market to stabilise the dollar.

The dollar jumped 0.4 % to 106.68 yen and struck a three-month peak of 106.83 yen.

The euro fell 0.3 % to USD 1.5594 and dropped as far as USD 1.5558, a sharp reversal from a six-week peak of USD 1.5844 struck on Monday.

Against a basket of currencies, the dollar was up 0.3 % at 73.077, pushing back towards a one-month peak of 73.87 struck last week.

Oil price rebounds from slide

U.S. crude oil futures rose on Tuesday, rebounding from Monday when a stronger dollar and profit-taking led to one of the biggest single-session falloffs in history.

Front-month U.S. crude for July delivery was up 73 cents, or 0.54 %, at USD 135.08 a barrel on the Globex electronic trading platform. On Monday, it settled lower by USD 4.19, or 3.02 %, at USD 134.35.

U.S. crude jumped to a record USD 139.12 on Friday, for the biggest single-session gain of USD 10.75.

Nikkei climbs

Japan's Nikkei stock average climbed 0.7 % on Tuesday, buoyed by a combination of lower oil prices, unexpectedly strong machinery orders data, and a stronger dollar that boosted Honda Motor Co and fellow exporters.

Softbank Corp, Japan's third-biggest mobile phone operator, climbed nearly 4 % after saying on Tuesday that it would start selling Apple Inc's new iPhone in Japan from July 11.

Machinery shares were strong after Japan's core machinery orders rose a faster-thanexpected 5.5 % in April, rebounding from a two-month streak of declines.

By midmorning the benchmark Nikkei had gained 121.99 points to 14,303.37. The broader Topix was up 0.9 % at 1,409.44.

Jyske Markets - FX Research
http://www.jyskebank.dk/finansnyt

The analysis is based on information which Jyske Bank finds reliable, but Jyske Bank does not assume any responsibility for the correctness of the material nor for transactions made on the basis of the information or the estimates of the analysis. The estimates and recommendation of the analysis may be changed without notice. The analysis is for personal use of Jyske Bank's customers and may not be copied.