Renminbi false alarm traced to web error

Asian currencies and global equities leapt and the US dollar and Treasuries fell yesterday following a report that Beijing was poised to announce a long- awaited end to the renminbi's peg to the dollar.
The report, carried on the English-language website of the People's Daily, the Communist party's newspaper, was later shown to be based on a mistranslation of a four-day-old article from the Hong Kong press. A spokesman for the People's Bank of China denied any change to the decade-old peg and officials at the newspaper later admitted that the online story contained a faulty translation.
The report was the latest false alarm about the possible revaluation of the renminbi, under pressure from large capital inflows into China and demands from the US, Japan and Europe for an end to the peg.
The yen rose 0.7 per cent to Y104.92 against the dollar and 0.9 per cent to Y135.01 against the euro, with the Singapore dollar, Indian rupee and Thai baht also gaining. The US dollar and European currencies fell.
European equities rose, led by gains for Asian- focused banks HSBC and Standard Chartered, which could gain translational benefits from a revaluation.
US Treasury futures fell on fears that a revaluation would reduce the need for Asian central banks to buy dollar assets to weaken their currencies.
This was a useful trial as to how the market would react when there is a revaluation.
Many people still think that China could revalue at any time, and they still think that the highest probability- of 60 per cent, for a 3-5 per cent revaluation in coming weeks, within a shift to a wider time band.

Sterling slips on weak retail sales data

Sterling hit a one- month low against the US dollar on Tuesday as poor retail sales data added to the gloom surrounding the UK economy.
Comparable retail sales tumbled by 4.7 per cent in April, according to the British Retail Consortium, the biggest fall since records began in 1995. Adding to the gloom, the Land Registry said UK house prices rose 10.3 per cent in the year to the first quarter of 2005, the smallest annual increase since the first quarter of 2002, with transactions down 35 per cent on a year earlier.
The data come just a day after it emerged that the UK manufacturing sector was faltering.
Despite some concerns that the retail sales figures may have been distorted by an early Easter, the pound fell 0.5 per cent to $1.8763 against the dollar before recovering to $1.8817, 0.3 per cent to £0.6835 against the euro, 0.3 per cent to Y198.66 against the yen and 0.4 per cent to A$2.4269 against the Australian dollar.
Elsewhere major currencies were little changed, although the dollar reversed early gains to sit at $1.2870 against the euro and Y105.53 against the yen amid jitters ahead of today’s update on US trade, with the deficit likely to have widened to $61.9bn in March.
There were also rumours in the market that a number of US hedge funds may have got their fingers burnt shorting GM and that last week’s strong US payrolls data may have overstated real jobs growth.
The Norwegian krone rose 0.6 per cent to a near one-year high of SKr1.1357 against its Swedish counterpart as strong inflation data supported talk of a Norwegian rate hike, with UBS seeing this happening as early as June.
The New Zealand dollar initially slid 0.6 per cent to $0.7257 against the greenback, amid a claim that foot and mouth disease had been deliberately released on a small island near Auckland.
If true, the news could be potentially devastating for New Zealand, with exports of dairy products, meat, wool and hides accounting for almost a third of the country’s NZ$31bn of annual exports. However the kiwi later recovered to $0.7309 on speculation that the claim was a hoax.

UK interest rates held at 4.75%

The Bank of England has left UK interest rates unchanged at 4.75% for the ninth month in a row.
Concerns about an accelerating rate of inflation were outweighed by evidence that the UK economy may be going through a sticky patch, analysts said.
Government figures on Monday showed a drop in manufacturing and industrial output, while consumer demand is slack and house price growth has cooled.
Analysts said that UK interest rates were now more likely to drop than rise.
With interest rate rises now largely off the agenda, attention will soon turn to when the Bank of England is likely to start cutting interest rates.
On Monday, figures from the Office for National Statistics showed that manufacturing production fell 1.6% in March - the biggest drop since June 2002 - while industrial production slid by 1.2%.
That data comes after mortgage lender Halifax said UK house prices were unchanged in April, adding there had been no movement since January.
Its report showed that annual price inflation had fallen to 7.8% in April - its lowest level since June 2001 - down from 9.7% in March.
The confusing state of the UK housing market was underlined on Monday when the Office of the Deputy Prime Minister said that according to its figures - which lag behind other surveys - the annual rate of price inflation was 12.6% in March.
Analysts said that even though the figures were out of kilter, it was not enough to signal a change in the softening of house prices nationwide.
The uncertainty surrounding the housing market has prompted many consumers to curb their spending, according to the CBI.
The business lobby group's monthly trade survey showed UK retail sales fell at their fastest pace in almost 13 years during April, prompting it to urge the Bank of England to leave rates on hold.
Company statements have made for equally sobering reading, with home improvement firm Kingfisher, general retailer Argos and music seller HMV all reporting falling sales.
Even budget stores are feeling the pinch - discount retailer Matalan reported sales plunged in March and April.
On top of that, economic data from the US and Europe, key trading partners, have shown a decidedly mixed picture.

Mixed results on data

The US Dollar rallied against both the Euro and the Pound on Friday on robust US non-farm payroll data challenging theories that the US economy has hit a soft patch. US Payroll data rose by 274,000 in April against 146,000 (revised figures) in the previous month, while US unemployment rate remained unchanged at 5.2%. Previous two months job additions were also revised up by 93,000.
However, Dollar gains against Yen were limited as Asian currencies continue to get support from Chinese Yuan revaluation talks. Players would now look at data on US trade balance, retail sales and consumer confidence this week for further direction.

Outlook for the day
EUR/USD - Euro is expected to test the critical supports near 1.2750. Expected range 1.2750-1.2900 with a weaker bias.
GBP/USD GBP too is looking weak and expected to trade in 1.8825-1.8925 range.
USD/JPY USD/Yen is testing the resistance at 105.50 and expected to trade in 104.50-106 range.