Evening Report-May 29.

The Rupee strenghtened to its highest and closed at 47.10 following gains of over 2 per cent in the domestic shares and a sharp fall in the dollar versus major currencies overseas. India's economy grew a faster than expected 5.8 percent in the March quarter from a year earlier, as a still strong services sector offset a decline in manufacturing.The annual growth for India's fiscal fourth quarter was above a median forecast of 5.2 percent but sharply lower than the year-ago quarter's 8.6 percent expansion.The manufacturing sector contracted 1.4 percent in the January-March quarter from a year earlier, while farm output grew an annual 2.7 percent.The dollar remains under pressure as it continues to be hindered by the reversing of the risk trade. A jump in Japanese industrial production added to the improving global picture which could continue today with the U.S GDP reading. Forecasts are for the second reading of growth in the U.S. to be revised higher to -5.5% from -6.1%. A 51.8% decline in private investment was cited as the main driver of the contraction, so look for a revision of such a large shortfall. Chicago PMI and University of Michigan consumer confidence are also expected to show improvements which will add to building optimism of a recovery and could continue to weigh on the dollar.The Euro continued to find support overnight as it set a new yearly high of 1.4091 on the back of an improvement in April German retail sales and rallying equity markets. Consumer consumption in the Euro--zone’s largest economy rose for the first time in four months, increasing by 0.5% following a 0.4% decline the month prior. Warmer weather and Easter holiday shopping helped increase demand but may have skewed the figures. Meanwhile, forex traders ignored a record low Euro-zone CPI-estimate report which showed that inflation is expected to fall to 0.0% in April following 0.6% the month prior. The central bank may not be too concerned with falling prices and deflation concerns now as this was evident by comments from ECB member Vitor Constancio who stated that "For two years we won't be close to the official goal for inflation," but" there aren't significant risks of a deflationary spiral." Nevertheless, falling prices will continue to shrink profit margins for companies which are now facing increasing input costs which could lead to more job losses going forward.The pound continues to trade higher as a rebound in home prices and increasing risk appetite has pushed the GBP/USD back above 1.6000 to reach above the 5/27 high of 1.6079. Nationwide LLC showed that house prices rose 1.2% in May as thawing credit markets have started to fuel demand. The BoE continues their quantitative easing efforts in hopes of driving down interest rates and providing liquidity to the market. Meanwhile, the Gfk consumer sentiment reading remained unchanged at -27 as Britons continue to look for positive signs that the recession is bottoming. If the housing sector stabilizes then we could see a sharp pick up in optimism which will only add to the current sterling bullish sentiment. The next resistance level is at 1.6148 the November 5th, 2008 high, trades should be cautious as the 38.2% Fibo level of 2.0160-1.3494 at 1.6048 is a formidable resistance level and without a clean break above downside risks will remain. JPY traded on a softer footing during the Asian afternoon after it responded to a series of weak Japanese releases, although there was one positive after industrial output posted its biggest monthly rise in by 5.2%. USD/JPY remained on the backfoot in the Asian morning amid general dollar weakness but weak Japanese data and persistent speculative activity via the JPY crosses saw it make a gradual back up to 96.75-80, where it currently trades.Yen should hold up in this environment but an overhang of exporter selling interest and talk of real money hedging above 97.00 could hamper movement along with general dollar supply.