The Peseta was converted to the Euro on 1st of January 2002 and it is still possible to convert the Peseta into Euros at national central banks. One Euro = 166.386 Pesetas.

Spanish automatic tellers will allow anyone with a card connected to the visa network to withdraw cash from their home account. Travelers checks and major currencies can also be exchanged in banks, exchange houses and many hotels. If you are traveling to Barcelona it is recommended that you have a back up plan to obtain money as petty theft is a problem.

Credit cards, including AMEX are widely accepted in good hotels, shops and restaurants. Many smaller establishments however do not have credit card payment facilities, so it is recommend you carry sufficient cash for the day with you.

The fall in the Mexican currency wiped out early gains that were fueled by the expectation that the Mexican central bank will maintain its benchmark interest rate at 7.5% tomorrow.

Investors expect the Peso to bounce back due to the widening gap in the difference between the U.S. and Mexican interest rates, with Mexican assets looking increasingly attractive.

Bernanke explained that credit becoming more expensive and less available was causing economic growth to be restrained. He went on to state that the downside risks to growth have increased and the outlook for the economy has worsened in recent months.

It is anticipated that Banco de Mexico will begin to cut rates soon, possibly as early as next month, in an attempt to boost economic growth.

The Swedish central bank explained that it has raised the interest rate by 25 basis points to combat rising inflation, adding that there were risks linked to slower economic activity and financial market turbulence.

The bank has kept its options open, by explaining that future monetary policy decisions will be based on data that is released, but did advise that interest rates are expected to remain steady for this year.

The move saw the Swedish krona rise from 6.4275 from a price of 6.4785 prior to the news release.

Forex investors have already priced in a 50 basis point cut to the value of the USD. Investors expect a 50 basis point cut will see an increase in the value of gold, while a lesser rate cut could see a correction in the price of precious metals.

With economic data today pointing towards a slowing economy with growth in private sector unemployment, there is concern that the 50 basis point cut stock market investors are hoping for may not happen.

While a falling stock market has been proven to consistently boost the value of gold, the precious metal could find itself under pressure as investors and funds are forced to close profitable positions to cover losses elsewhere.

Silver hit a 27 year high yesterday at $16.79 per ounce, with some investors cashing in on profits.

It is expected the Fed will announce its interest rate decision around 7:15 pm GMT.

At the same time, inflation will climb slowly, registering 1.3 percent in the first six months of the year and 1.7 percent for the 12 months, according to the report, from the People’s Bank of China’s research bureau.

The forecasts, released over the weekend and published in the Beijing Morning Post on Monday, come despite a stream of government measures aimed at slowing the economy, following growth of 10.3 percent in the first quarter.

China’s economy has showed few signs of responding to the cooling measures, such as an interest rate hike in April and policies targeted at curbing investment in the property sector.

China is the world’s fastest growing major economy, with expansion fueled mainly by investment and exports. It grew 9.9 percent in 2005.

SOURCE: AFP

However, he told Reuters in an interview that a shift remains the bank’s long-term objective.
“The board is making the decision but it has not taken the decision yet,” he said on the sidelines of a conference in London.

“The UAE economy is evolving and it is important to diversify (Forex reserves). We need to diversify, not for any reason except that we have to move away from just (having) a single currency. Otherwise you get caught in the wrong corner. Diversification is a long-term objective.”

The central bank of the UAE has been keeping markets guessing about its plans to convert 10 per cent of its reserves from US dollars to euros, announced earlier this year. UAE central bank foreign reserves, which stood at $23 billion in December, are held almost entirely in US dollars.

“We do have a high ratio of dollars but this is appropriate because the US dollar is the currency for international trade and for investment,” Al Suweidi said yesterday.

The central bank controls only part of the foreign exchange reserves of the UAE. Other major holders include the investment arms of the emirates’ governments.

Some analysts say official Forex reserves make up less than 10 per cent of Gulf Arab government holdings.

The UAE is one of six members of the Gulf Cooperation Council (GCC) along with Saudi Arabia, Kuwait, Qatar, Bahrain and Oman.

SOURCE: Khaleej Times Online

JON’S COMMENT
Another bearish sign for the US Dollar as many countries now plan to diversify their Forex reserve away from the Dollar toward Euros or even Gold.

The Euro fell to 1.2637 dollars in early European trading from 1.2659 dollars late on Wednesday in New York.

The USD climbed to 115.14 yen from 114.86 yen on Wednesday.

In Asian trading, the USD had extended losses ignited Wednesday after European Central Bank chief Jean-Claude Trichet raised expectations for further rate increases in the eurozone.

Despite a slight rebound, “the dollar remains under selling pressure against the euro, pound and Swiss franc”, said Derek Halpenny, senior currency economist at The Bank of Tokyo-Mitsubishi in London.

However the US currency remains stable against the yen as speculation grows of a Japanese rate hike in July, he added.

Meanwhile sterling fell against rivals after David Walton, the only Bank of England policymaker to call for an increase in British interest rates earlier this month, died suddenly late Wednesday.

“It is with great sadness that the Bank of England has learnt that David Walton, an external member of the Monetary Policy Committee, died yesterday evening, unexpectedly and after a short illness,” the central bank said in a statement. Walton was 43.

The Bank of England’s rate-setting MPC voted 7-1 to keep British borrowing costs at 4.50 percent, minutes of the June 8 meeting showed on Wednesday. It was the tenth month in a row that the BoE froze its key “repo” rate — the rate at which the central bank lends to commercial banks.

The market meanwhile turned cautious on the yen, which had risen earlier this week as Bank of Japan governor Toshihiko Fukui sparked fresh speculation of an end to the central bank’s unconventional zero-interest rate policy.

The euro was changing hands at 1.2637 dollars against 1.2659 on Wednesday, 145.50 yen (144.74), 0.6871 pounds (0.6838) and 1.5635 Swiss francs (1.5593).

The dollar stood at 115.14 yen (114.86) and 1.2370 Swiss francs (1.2355).

The pound was being traded at 1.8393 dollars (1.8456).

SOUCE: AFP

The Riksbank’s goal is to hold inflation to less than 2.0 percent. Inflation has risen over the past year and stood at 1.6 percent in May, but was projected to rise further over the next two years, the bank noted.

“To ensure an inflation rate close to target and contribute to a balanced development of the real economy, monetary policy should become gradually less expansionary,” the bank said Tuesday, motivating its decision.

The higher rate of price increases was partly due to external factors such as rising energy prices, but the bank also cited rising household debt and rapid increases in housing prices in Sweden as causes for concern.

Looking ahead, the bank said economic activity was expected to remain good.

It forecast that gross domestic product (GDP) would rise by 3.7 percent this year, revised upward from a previous growth estimate of 3.5 percent.

Exports and investment would rise faster than previously expected, although consumer spending was now believed to be less buoyant than thought before, it said.

The continuing upswing would be accompanied by rising employment levels, further contributing to inflationary pressures.

“A couple of years ahead, inflation is expected to be in line with the inflation target of two percent,” the Riksbank said.

The bank raised its inflation forecast for 2006 to 1.5 percent from 1.1 percent earlier, and to 2.3 percent in 2007 from 2.1 percent.

These forecasts were based on expectations in Swedish financial markets, reflected in the level of forward contracts, that the repo rate would stand at 2.75 percent at the end of this year and just under 4.00 percent in 2009, the bank said.

But inflationary pressures made more aggressive rate hikes possible, it said.

“It is reasonable to assume that the repo rate will need to be increased further. It is possible that there will be a need for slightly more rate increases over the coming year than recent market expectations have implied,” it said.

Handelsbanken chief economist Peter Kaplan said the central bank’s view on inflation was unexpectedly hawkish.

“We believe this means that the repo rate will be raised another three times this year, and that it should reach 2.75 or 3.00 percent by the end of the year,” he told the TT news agency.

The repo rate was last changed in February, when it was also rose by a quarter point.

SOURCE: AFP

The Bank of Japan governor has admitted keeping an investment in the fund of high-profile investor Yoshiaki Murakami, who was arrested earlier this month on allegations of insider trading.

Forty percent believe that Fukui should resign over the scandal, said a survey carried out jointly by the Yomiuri Shimbun, Japan’s best-read daily, and NTT Resonant Inc., an Internet service company.

Another 27 percent said they agreed with Fukui’s decision to take responsibility by returning part of his salary and eight percent think his earlier apology was sufficient, it said.

Only 14 percent said the scandal did not require the central banker to take responsibility, with the remainder giving other responses.

The poll looked at responses from 803 people selected as representative out of a larger sample pool.

Fukui has said he will not pocket any of the profit from his investment and will give up 30 percent of his salary for the next six months.

He has rejected calls for his resignation made by the opposition and received the backing of the government and prominent business leaders, who largely praise his handling of the economy since he took office in 2003.

Murakami had been seen as a trailblazer for launching Japan’s first aggressive takeover bid and campaigned on behalf of shareholders’ rights.

Fukui, who was in the private sector when he put in 10 million yen (87,700 dollars), defended his investment, saying he wanted to support entrepreneurship and did not suspect any wrongdoing at the time by Murakami.

Murakami was arrested on June 5 on allegations of insider trading related to scandal-tainted Internet firm Livedoor.

SOURCE: AFP

Top cabinet members including Prime Minister Junichiro Koizumi sought to reassure investors that Japan’s economy is in solid shape after the Nikkei index fell over three percent Thursday — its biggest one-day loss this year.
“The Japanese economy is on a recovery path,” Koizumi said.

Kaoru Yosano, state minister in charge of economic and fiscal policy, also said the nation should not become pessimistic over stock prices.
“The time of volatility will last for some time but the market will start reflecting the fundamentals of the Japanese economy after that,” he said.

Following the government’s call, BoJ deputy governor Kazumasa Iwata said the central bank was not accelerating the process of draining excess cash from the banking system following the end to its ultra-loose monetary policy.

At the same time he indicated that the BoJ would continue to move toward an end to its zero interest rate policy despite the stock market plunge.
“We have not changed our view that interest rate levels will be gradually adjusted as the nation’s economy is shifting to a normal state from deflation despite the current movement of asset prices,” Iwata told a news conference in the city of Akita, as quoted by Kyodo News.

In an earlier speech Iwata dismissed concerns about falling stock markets, saying: “As investors’ position adjustments calm down, the stock and bond markets will recover stability.”

SOURCE AFP

“Monetary policy makers agreed that the economy continues to be on the upside in the second quarter, supported by robust exports and a recovery in private consumption and (corporate capital) investment,” central bank governor Lee Seong-Tae said.

“Prices have remained very stable so far, helped by a stronger local currency and falling agricultural prices … but high oil prices, coupled with the economic recovery, will likely to put upward pressure on (inflation),” Lee said.

The central bank has gradually been raising interest rates since October last year as the economy recovers from a two-year slump.
Highlighting the inflation risk, South Korean consumer prices rose at a faster-than-expected pace in May with a year-on-year gain of 2.4 percent after 2.0 percent in April.

“The rate hike poured cold water over already chilled investment sentiment here. Many investors are complaining about the timing,” Hanwha Securities analyst Yoon Ji-Ho said.
“We’re almost nearing the selling climax, although a meaningful rebound seems to be remote,” he added.

Inflation pressure is likely to build as Asia’s fourth largest economy is expected to grow five percent this year, up from four percent in 2005.
Finance and Economy Minister Han Duck-Soo said Thursday the economy was still on an expansion course although pressure from “downside risks,” including high oil prices and a rising won.

South Korea posted its biggest current account deficit since before the 1997 Asian financial crisis in April, hit by high oil prices and seasonal dividend payments overseas.
The deficit more than trippled to 1.53 billion dollars from 426.8 million dollars in March, bringing the total shortfall for the four months to 1.06 billion dollars, Han said.

SOURCE AFP

The Russian Central Bank’s move ties in with increasing signs that Middle Eastern oil exporters are also looking to diversify their reserves out of the dollar. “This is a bearish development for the dollar,” Chris Turner, head of currency research at ING Financial Markets, told the British Financial Times. “It reminds us that global surpluses are accumulating to the oil exporters,and Russia is telling us that an increasingly lower proportion of these reserves will be held in dollars. This suggests there is a trend shift away from the dollar.”

Clyde Wardle, senior Emerging Market Currency strategist at HSBC, told the paper: “We have heard talk that Middle Eastern countries are doing a similar thing and even some Asian countries have indicated their desire to do so.”

Moscow’s move was unsurprising. Russia’s $71.5billion Stabilization fund, which accumulates windfall oil revenues, is due to be converted from rubles to 45 percent dollars, 45 percent euros and 10 percent sterling. The day-to-day movements of the ruble are monitored against a basket of 0.6 dollars and 0.4 euros. About 39 percent of Russia’s goods imports came from the eurozone in 2005, against just 4 percent from the US.

The statement plays into a perception that central banks, which together hold $4.25 trillion of reserves, are increasingly channeling fresh reserves away from the dollar to reduce potential losses if the dollar was to fall sharply.
SOURCE: MOSNEWS

JON’S COMMENT
This is something I want to talk about more in the coming week. The USA was technically bankrupt in the 70’s and saved their economy by forcing everyone to buy oil on the international market using the US Dollar. But lately we have seen an increasing number of countries defying this. Iraq was one of the first to do this a few years ago with the results that we know today. Iran had plans of starting an Oil Bourse in the Middle East earlier this year which was to be dealt in other currencies and we are seeing the results of this now in the media (nuclear threat ?!?!). Now Russia has joined the ranks of other countries looking into investing more in other currencies or Gold from their massive Oil revenues. I’ll make a special report on all this soon, but my analysis is that the Dollar will be facing tough changes in the coming months/year which should result in it being even more devalued than it is at the moment.

Bollard said that given the unavoidable nature of the oil price rises, it would be inappropriate to raise interest rates in response.
“We do not expect to tighten policy in response to the high headline inflation in the short term,” Bollard said.
“But equally, we cannot afford to ease policy until we have more certainty that future inflation outcomes will be trading down comfortably below three percent.”

The central bank expects inflation to remain above three percent well into next year.
Reiterating comments made earlier in the year, Bollard said he did not expect to lower interest rates this year despite the rapid slowing of the economy.

Economic growth is expected to slow to 1.6 percent in the year to March 2007, before rising to 2.7 percent the following year.
“Export growth will recover as a result of the lower exchange rate and buoyant demand in world markets,” Bollard said.
“At the same time, household spending will be constrained by a continued weakening in the housing market, high petrol prices and a slowdown in employment growth.”

Many economists had been predicting a cut in the official rate later this year despite repeated indications to the contrary by Bollard. But worsening inflation pressures and a more hawkish tone from Bollard on inflation are making some take a second look at those predictions.
Westpac Bank senior economist Nick Tuffley said the scenario of no rate cut this year was looking increasingly likely.

“The risks to our call for a cut in October are all skewed one way,” Tuffley said.
“However, the Reserve Bank risks overestimating both growth and inflation over the next year, and rate cuts are less distant than it perceives,” he said.

ANZ Bank economists agreed the higher inflation risk made a cut less likely before 2007 but added that any evidence of a sharp weakening of the economy later this year could leave scope for a cut.

“We continue to believe the Reserve Bank will have scope to cut the official rate by the end of the year although this will still require a huge leap of faith on the inflation front,” they said.
ANZ is expecting a relatively strong March quarter gross domestic product number — which is due on June 23 — but economic data will again turn weaker afterwards.

“We expect such a change in domestic data to once again turn the markets attention back to an easing theme sooner rather than later.”

The decision to leave interest rates unchanged was widely expected by financial markets.

SOURCE AFP

The CB noted that the probability of increasing the policy rate in the near future is less now when compared to May, adding that they might lower the rates when the medium term inflation targets seemed attainable. Hence, the CB opted for a once-and-for-all increase in the interest rates to stop speculations of any further rate hikes. They think that this bold move would calm down the markets and prove that the CB could take drastic measures independently when it is seen necessary.

Therefore, we think that the CB not only wanted to take a measure to ensure the attainability of medium-term inflation target, but also to give markets a signal that the relative independency of the CB that we had been enjoying in the last couple of years was still intact.

Nevertheless, we think that even this excessive rate hike would not help the CB to attain the 5% year-end inflation target. In fact, we think that even the CB does not believe in this to happen. What the CB wanted to do is to ensure that the inflation target of 4% set for 2007 could be achieved. Hence, we do not expect an instant turnaround in the inflation readings in the coming months and forecast that the annual inflation by the end of the year would be higher than the upper band.

However, the CB’s determination would help the markets to adjust their medium-to-long term inflation expectations according to the official targets; given that we would not have significant external shocks and the government would show the same determination as the CB.

SOURCE: Yapi Kredi Bank

The decision-making body of the BoE, the Monetary Policy Committee (MPC), will likely freeze the “repo” rate, at which the central bank lends to commercial banks, according to a poll of 35 forecasters by AFP’s financial news service AFX News.
However, economists are speculating that the cost of borrowing could rise as soon as August to keep inflation in check.

The MPC, starting two-day deliberations on Wednesday, had warned last month that inflation would overstep its key 2.0-percent inflation target within two years if the cost of borrowing remained at the current level.

“No change is widely expected on Thursday, but on balance we still think the Bank will hike rates in August to 4.75 percent,” said Investec Securities economist Philip Shaw.
In May’s quarterly Inflation Report, the BoE had predicted that soaring oil prices would help push 12-month inflation above the government-set 2.0-percent target in the near-term, before dropping back to around target.

That fuelled expectations that the MPC was gearing up for a rate hike some time this year.
British 12-month inflation rose to 2.0 percent in April from 1.8 percent in March, lifted by an increase in air fares and rising domestic gas and electricity bills.
Other recent developments would also affect the rate-setting body’s decision this month, according to HSBC economist John Butler.

“Since the Inflation Report, the key developments have been a sharp drop in equity prices and a 3.0-percent rise in trade-weighted sterling,” Butler said.
“Both moves should dampen the committee’s fear of inflation and, hence, keep the MPC on hold.”

Last month the bank froze the cost of borrowing in Britain at 4.50 percent in May for the ninth month in a row against a backdrop of steady economic growth.
The MPC was split three ways in May’s interest rate vote for the first time for nearly eight years, minutes from the meeting showed.
Six MPC members, including BoE governor Mervyn King, had voted to keep interest rates unchanged at 4.50 percent, while David Walton voted for a quarter-point rise and Steve Nickell, in his final meeting, called for a quarter-point cut.

Following the departure of Nickell — who has voted for a cut on six consecutive occasions — the MPC now has a bias towards monetary tightening, according to HSBC’s Butler.
Nickell is being replaced on the Committee by David Blanchflower, professor of economics at Dartmouth College in the United States, who has run into controversy with his plan to split his time between the Britain and America.

The vote in May marked the first time the committee had split three ways since August 1998, and was only the third time since the bank was granted its independence by Britain’s Labour government in 1997.

The MPC has been reduced to eight members for its April, May and June meetings, after senior member Richard Lambert left his post ahead of becoming the new boss of employers’ body the Confederation of British Industry.

SOURCE: AFP