• Malaysian PM says China and Malaysia are considering trading between themselves with the yuan and ringgit instead of US dollars
  • Mainland France Q-1 jobless rate 8.7%, up from revised 7.6% in Q-4 2008 – Insee
  • Russia central bank cuts refinancing rate to 11.5% from 12%
  • LDP’s Hosoda: Not considering more economic stimulus steps. Says impossible for ruling bloc to keep 2/3 majority in Lower House election
  • UK Halifax house price index +2.6% m/m in May, much better than median forecast of a -1% fall
  • Euro zone April retail sales +0.2% m/m, -2.3% y/y vs median forecasts of +0.2% and -2.9% y/y respectively. March data revised upward, to -0.1% and -3.4% from -0.6% and -4.2%
  • Latvian Lat strengthened after State Treasury bought Lats, sold euros -Dealers
  • Latvia 5-year credit default swaps rise over 45 bps, Lithuania up over 30 bps
  • Bank of England leaves rates unchanged at 0.5%, QE maintained at £125 bln

Another crazy morning, seems to be the way of things these days. Again a game of two halves.

First half saw USD generally weaken. China was in early buying EUR/USD and the pairing lifted all the way from 1.4170 up to a sesion high 1.4240. At this juncture the USD was being underminned by improved risk sentiment (stocks, oil doing nicely) and reports China and Malaysia are thinking of using ringitt and yuan for trade between the countries rather than the dollar. Some also pointed to comments made by Bernanke yesterday when he warned that failure to ensure long-term fiscal sustainability would mean there would be neither financial stability nor healthy economic growth.

Cable benefitted very nicely from the above factors and also got a good boost from much better than expected Halifax house price data (see above) going all the way from around 1.6240 to a session high 1.6433.

Then began the second half. EUR/USD and cable started to slide lower, with sources reporting profit taking ahead of the BOE, ECB rate decisions.

The move in EUR/USD accelerated as concerns over the parlous state of Latvia and the other Baltic States mushroomed, with Latvia, Lithuania CDS rates shooting higher. A very bearish article in The Times was noted.