Evening Report-May 19.

The Indian Rupee gave up gains of over 1 percent and closed at 47.77 as choppy shares failed to provide clarity on direction of fund flows, with likely central bank intervention also adding to the pressure.U.S. dollar has remained under pressure as the demand for risky assets carried over from the U.S. session yesterday into Asian and European markets. Additionally, JP Morgan Chase Co, Morgan Stanley, and Goldman Sachs are rumored to have asked permission to pay back over $45 of TARP funds. This should help restore confidence to the banking system and has U.S. futures in positive territory. Therefore, if there is a strong housing starts report today, equities could extend yesterday’s rally which could signal more dollar weakness. New construction is forecasted to rise to 523,000 from 510,000 which would add to the improving picture for the housing sector and the economy. The Euro also saw steady gains through overnight trading reaching as high as 1.3657 after the German ZEW survey crossed the wires at a three year high of 31.1. However, the bullish response was limited as the sentiment gauge also showed that existing conditions are worsening with the reading falling to -92.8 from -91.6. Additionally, Euro-zone construction with a print of -1.0% added to the dismal economic picture. It was the consecutive drop in activity for the region and a sign that the recession may not have bottomed leaving more work for the ECB. The pound shot higher at the beginning of the European session as bullish equity markets helped provide support for the currency. Surprisingly sterling temporarily extended its gains post a softer than expected consumer price report which showed inflation easing to 2.3% from 2.9% on an annualized basis in April. The depreciation in prices was more than the 2.4% that was expected by economists and the lowest in 15 months. April saw fuel & light costs fall by 2.8% followed by a 0.7% drop in home values. Housing prices have been the biggest drag on the index as they have fallen by 12.1% on an annualized basis. A 5.2% fall in clothing costs demonstrates the impact the recession has had on consumer consumption, but the component has improved over the past five months which could be a sign that demand is building. The MPC minutes due out tomorrow may also have the steam taken from them after the quarterly inflation report provided the justification for the central bank to add to its quantitative easing measures by another £50 billion. An expected 0.5% increase at the end of the week in retail sales may help build on the cable’s gains as it would add the signs that the recession is slowing. Japanese Yen fell as rising confidence in the banking industry sapped demand for the currencies after three financial institutions applied to refund government-bailout cash. Machine tool orders were unrevised at -80.4%.