Evening Report-May 04.

Indian rupee gave up some more of its early gains against the US dollar because of persistent demand for the greenback from importers. Banks also covered their short positions after dollar inched up against major currencies like the euro and the pound sterling.Gold related demand and dollar demand from oil companies also pulled the Indian unit off its highs.U.S. dollar has started to regain its footing on the weak European data which helped reverse earlier losses built on an increase in the Chinese PMI reading to 53.5 from 52.4. The improvement in manufacturing activity helped boost optimism for the global economy which could be picked up by U.S. markets and continue greenback losses. However, the U.S. fundamental calendar will present event risk in the form of U.S. pending home sales which are forecasted to remain flat after a 2.1% increase in February. The lack of improvement in the housing sector could give investors pause as there are expectations that we could see continued weakness in the sector as mounting job losses stretch Americans and increase the potential for more foreclosures. Speculation that GM will follow Chrysler into bankruptcy could be also weigh on investor sentiment and generate safe-have flows into the dollar.The Euro has traded heavy since reaching an intraday high if 1.3348 on the back of slumping German retail sales and an uninspiring improvement in the Euro-zone Sentix investor sentiment reading. Unemployment in Germany has risen to its highest level in over a year at 7.6% and the weak labor market weighed on consumer consumption which declined by 1.0% in March versus expectations of a 0.2% gain. Meanwhile, the Euro-zone Sentix investor confidence reading slightly improved to -34.3 from -35.3 but was significantly below estimates of -28.0. Traders have become more pessimistic about the current state of affairs which is offsetting the improving outlook for the future. On a positive note the final reading for the Euro- zone PMI reading was revised higher to 36.8 from 36.7, as it improved for a second month. Pound has come under considerable pressure falling below 1.4870 after reaching as high as 1.4982 despite Holiday trading in the U.K.. The weakness has come on the heels of the disappointing European data and the failure of the pair to break above the 1.500 price level could be a sign of more weakness to come. The BoE will also announce their rate decision on Thursday but unlike the ECB is forecasted to keep their benchmark rate at the record low of 0.50%. The central bank has already embarked on quantitative easing measures which have started to impact credit markets and is expected to start to have an impact on the economy in the coming months. Their purchase program of government debt is expected to take another month to complete and until then the MPC should stand pat and asses its impact. yen plummeted against its major counterparts as the Asian stock markets rose on optimism about emerging strength in the U.S. economy and easing fears about swine flu, which increased investors risk appetite.