London Session

USD/JPY rallied sharply this morning on comments From Japan's Vice Finance Minister Sugimoto that excessive moves in currencies may hurt the economy.
This has been taken as a shot across the bows that the present level of the JPY may be of concern to the authorities. The value of the BoJ's effective exchange rate has been softening this year relative to its January peak as worries over the global financial crisis have eased. However, the average value of the real effective exchange rates last month was 23% stronger than in April 2007. This will not be sitting happily with the fact that the market expects Japanese Q1 GDP (due later this week) to fall by 8.7% y/y. Despite the domestic difficulties of the Japanese economy, risk aversion is likely to continue to favour the JPY. Another poor showing in most equities indices today, with the clear exception of India, suggests that a cautious tone in markets has carried over from last week. Though a strong showing in financials has lifted the FT-SE and could set a better tone for the US session.

USD/JPY has run into resistance at the 95.80 area. EUR/JPY is stalling around 129.00. The yen initial saw little follow-though on news of Moody's downgrade of Japanese foreign currency bond rating.

Sterling performed particularly well vs the EUR this morning. Much of the fall in EUR/GBP is being drawn from last week's poor GDP news from the Eurozone which has encouraged the view that the EUR may have to play ''catch-up'' with the pound and that sterling's sharp losses since late 2007 more than reflect poor UK specific news. This morning the pound found further encouragement in the publication of the Rightmove survey suggesting that UK house prices have rallied by 2.4% m/m in May. This is consistent with the view that the worse may be over for the UK housing market. Later this week, the market faces the official UK retail sales data from the ONS. Survey data have already suggested that April may have been a relatively good month on the High Streets. However, the gilt market this morning was boosted by the admission from the ONS that official statistics may have overstated the volume of retail sales by 56% since the crisis began. EUR/GBP has run into support at 0.88, assuming that UK retail sales data doesn't shock to the downside this week, there is potential for sterling to win back more ground from the gloom laden EUR.

Elsewhere, Indian markets received an unexpected boost that the election have given the ruling Congress Party a mandate to continue with economic reform. There are few data releases this afternoon.

Upcoming Economic Data Releases (US Session). Prior, Expected