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Forex outlook:
The yen stayed near a 4 1/2-year low against the dollar and an all-time trough versus the euro on Monday after a Bank of Japan business sentiment survey supported the view that Japanese interest rates will rise only gradually. The dollar is trading around the levels of 1.3545 against the Euro, around the levels of 122.75 against the Yen and around the levels of 2.0120 against the starling.
The yen fell against the dollar and euro after the BOJ's quarterly tankan poll came in line with forecasts, but trimmed losses as investors were careful about selling the yen too much ahead of a holiday-shortened week in the United States. Many analysts say this trend will continue to keep the yen weak -- even if the BOJ lifts rates by 25 basis points to 0.75 percent as early as August, as markets expect -- so long as rate rises in Japan continue to come at a snail's pace. "The tankan confirmed sluggishness in Japan's recovery, weighing on the yen," said Masaki Fukui, senior market economist at Mizuho Corporate Bank, after the poll's headline diffusion index for big manufacturers came in at plus 23, stable from March and matching forecasts.” At the same time, the survey was not weak enough to scale back expectations for a BOJ rate hike in August. So its impact on the foreign exchange market was limited," Fukui said.
Traders said an incident in which a burning vehicle was driven into the main terminal at Glasgow's airport at the weekend, which followed a thwarted bomb plot involving two cars in central London late last week, was having limited impact on the Tokyo market on Monday. In addition to the BoE, the European Central Bank and the Reserve Bank of Australia will also hold policy meetings this week. Markets expect the central banks to keep rates steady at 4.0 percent and 6.25 percent, respectively.
Sterling hit a 2 1/2-month high versus the dollar at $2.01 , inching near a 26-year high before the Bank of England holds a policy meeting later in the week, when it is expected to lift rates by 25 basis points to 5.75 percent. Investors flocked to high-yielding currencies, keeping the low-yielding yen under selling pressure as market players used the Japanese currency to fund purchases of assets in currencies that offer higher rates in what is known as the carry trade.
Gold: Gold was steady on Monday, with support coming from renewed security and inflation worries, while yen-based gold closed flat after inching up to its highest since last Tuesday. "There are a number of supportive factors for gold now, and it's a question of when players will start buying on those incentives," said Koji Suzuki; a market analyst at Kazaka Commodity Co. Ltd. Gold future contract is trading around the levels of 653.50$ per ounce
Crude Oil: Oil prices slipped on Monday as traders took profits after a weekend with no supply disruptions, and looked ahead to a recovery in U.S. refinery use that may boost fuel production. After gaining 89 cents on Friday U.S. light crude eased 23 cents after a $1.11 rally on Friday to the highest settlement since August 2006. "We can see some profit taking after short covering brought the market up to $71," said Ken Hasegawa at Himiwari CX. "The market will be range bound until the U.S Independence Day holiday on July 4." Thursday weekly U.S. inventory data, in which some traders expect to see higher U.S. fuel production after several plants returned from maintenance. Crude Oil future contract is trading around the levels of 70.47$ per barrel.
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