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.

In other news the Bank of England’s (BoE) inflation report contributed to pressure on the GBP as the Forex market reduced its interest rate expectations. The BoE expects inflation to drop below the desired 2% annual CPI over the next 12 months. The GBP fell briefly as the inflation report was released, but quickly recovered to stabilize about 1.95.

Attention will soon turn to the USD as Forex Investors await Federal Reserve chairman Ben Bernanke’s testimony to Congress, which is expected to cause further weakness to the dollar. The Forex market is expecting Bernanke to suggest that inflation is stabilizing on recent news of retail sales only showing modest gains.

The latest release of minutes from the Federal Open Market Committee meeting (FOMC) revealed that Fed officials are uncertain about the future interest rate direction and are concerned about short term inflation.

Forex Investors reacted to the release of minutes from the FOMC by continuing to reduce their USD holdings, this saw the Euro rise to a high of 1.2650 USD overnight from 1.2590.

The minutes were consistent with the Fed chairman’s Ben Bernanke’s testimony to Congress over the past two days in which he suggested that a pause in rate hikes would be a possibility if economic data continues to point towards slower growth.

Forex Investors holding USD also found little comfort in the recent Philadelphia Federal survey for July which fell to 6.0 index points, well below market expectations of 12.0 index points.

In upcoming events for next couple of weeks, the Federal Beige Book summary of economic conditions will be closely watched as will the next durable goods orders data and the next release of gross domestic product (GDP).

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

After seven consecutive sessions of gains in the dollar against the Euro, traders trimmed their positions after the Consumer Price Index data cemented the chances of a June Fed rate hike but shed little light on policy moves beyond that.

“The June rate hike was already priced in by the market,” said Marc Chandler, head of global currency strategy with Brown Brothers Harriman in New York.

“Although there’s a slight bias in the market towards another rate hike in August, the May CPI data doesn’t really help us judge what the Fed will do that far out,” he added.

“Short-term players were long dollars going into the data and got squeezed a bit,” said a currency trader with an asset management firm in New York.

The “core” consumer price index, excluding food and energy prices, rose a greater-than-expected 0.3 percent and the annual rate edged up to 2.4 percent, exceeding the upper threshold of what some Fed officials consider acceptable.

Growing expectations that the Fed will raise rates this month and possibly beyond, as well as a diminished appetite for risk, have boosted the U.S. currency this week.

Futures market have fully priced in a quarter percentage point rate hike by the Fed on June 29, the 17th such increase in two years. Traders will now look to the potential for the Fed to raise rates once again at its August meeting.

“The issue now is after June,” Greg Anderson, senior foreign exchange strategist with ABN-AMRO Bank in Chicago, said. “To be fair, the Fed doesn’t know and we don’t know. It will depend on the data,” he said.

Markets are expecting further euro zone rate hikes after the European Central Bank raised rates by 25 basis points to 2.75 percent last week, but investors have scaled back their expectations for the pace of tightening after comments by ECB President Jean-Claude Trichet following the meeting.

Fed officials including Chairman Ben Bernanke have made clear their concerns about inflation risks in the past week, cementing expectations for overnight rates to rise at the Fed’s next policy meeting on June 28-29.

SOURCE: Reuters

JON’S COMMENTS:
Well, I really thought that this news should have given the US Dollar a bit more of a break although I had a bearish view on it and knew this rally should remain fairly short lived. It really turned around quicker than I expected today so let see how it plays up in the coming days/week. My bearish dollar sentiment is surely reinforced here.

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.

The possibility that the Fed will raise rates for the 17th straight time to 5.25 percent sparked a round of dollar short covering, helping the U.S. currency recover from a sell-off on a soft employment report late last week.

But gains were limited as some investors worried that Bernanke’s comments did not necessarily guarantee that a rate rise is in the bag this month.

“The market is more or less split between whether the Fed will raise or not, so it’s hard to take on risk either way at this point,” said Fumihiko Kawano, forex manager at Nomura Securities.
Fed funds futures indicate a roughly 70 percent chance of a rate hike at the Fed’s two-day policy meeting that starts on June 28, up from less than 50 percent on Friday.

Traders said any recovery was likely limited with the renewed focus on a weaker dollar helping rein in the massive U.S. trade deficit and playing a role in correcting global imbalances.
“Bernanke’s comments may have triggered some short covering … but a rise in the dollar/yen to 113 yen is going to be pretty tricky,” said Nobuaki Kubo, forex planning manager at Resona Bank.

So far this year the dollar has tumbled 8 percent against the euro and 5 percent versus the yen, with the slide accelerating after the Group of Seven industrial powers called in April for China and other trade surplus countries to allow more currency strength.

RATES AND DEFICITS
Even if the Fed raises rates later this month, it would likely be the last before the central bank takes a break from the two-year run of credit tightening, just as other major central banks look set to bump up rates.

Dealers said that the dollar could face more downward pressure if the European Central Bank hikes rates at its policy meeting on Thursday, with speculation still simmering of a potential half-percentage point increase.

Most analysts expect the ECB to lift rates by 25 basis points to 2.75 percent and to signal more credit tightening is likely in store.

Global imbalances are also expected to be a focus later in the week with the release of U.S. trade figures on Friday, just as the Group of Eight finance ministers meet in St. Petersburg.
Japanese Finance Minister Sadakazu Tanigaki said the impact of high energy prices on the global economy would be a topic at the G8 meeting.

SOURCE: Reuters

JON’S COMMENT
How much further will the US extend its gain this week and could this be a good time to short the Dollar before the European Central Bank officially announce its rates hike? Even with a rate hike for the US Dollar later this month, with a likely pause afterward and some weak data, I believe the US Dollar will go back to it’s recent lows in the coming months.

Today’s activity appeared to be driven more by positioning rather than by orders with the dollar giving up some of yesterday’s gains. US Treasury Secretary John Snow’s comments that the US government remains ‘extremely dissatisfied’ at China’s slow pace of currency reform didn’t help the USD either. And the US Data that come out today so far seemed to have remained pretty low-key with a minor blow in weekly jobless claims numbers unexpectedly rising to 367k versus expectation of 319k. Federal Reserve chief Bernanke said that he expects an “orderly, moderate” decline in housing activity without mentioning inflation. The housing market has been a top economic performer in the past years which created a rapid appreciation in house prices empowered consumer spending and helped the economy move solidly ahead, but this might be about to change as well.

The GBP, meanwhile, also got a boost after key retail sales numbers showed that consumer spending in the country picked up in April — a factor which will advance expectations of a Bank of England rate hike before year end. Although the monthly gain was in line with expectations, the annual increase has above the forecasts of a 2.7 pct increase.

COMMENTARY
Overall after a short period of corrections and range trading, I think that the USD should resume its bearish trend in the coming weeks. What do you guys think? Do you think we have reached the bottom yet and will see the USD strengthen or is there still more downside to come?