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Financial Focus

The US FED has again cut its growth forecasts for the US economy, predicting that the US economy would expand between 2.7% and 2.9% this year, weaker than it expected just two months ago. Unemployment, meanwhile, will stay above 8% throughout next year in a prediction that will depress President Barack Obama, who is already on the back foot over the sluggish economy. The new forecasts come as the Fed confirmed that its second, controversial round of quantitative easing would end this month and as it pledged to keep the US interest rates at between 0% and 0.25% for an extended period.

EUROPEAN finance chiefs will decide on July 3rd whether Greece has met conditions for the next aid payment. Investors are watching to see if the ministers will clear the payment or prolong the uncertainty in a bid to increase pressure on the country’s lawmakers.

MINUTES from the Bank of England’s monetary policy committee, released yesterday, appear to have ruled out any normalisation of interest rates this year. The MPC’s minutes prompted some banks to put back their forecasts for monetary tightening in the UK – with the Bank hinting that policy could be loosened even further, with another round of quantitative easing.

MARKETS:

EUROPEAN shares are set to dip today, tracking falls in Asia and on Wall Street overnight, after the US Fed trimmed its growth forecasts for this year and next and offered no hints of further stimulus measures for the economy.

HONG KONG stocks edged lower this morning after a dour outlook on the US economy by Ben Bernanke weighed on markets, while tight liquidity in China’s financial system continued to subdue banking shares. Analysts and traders said banks expected liquidity to remain tight until the end of June, but may improve next month, which could see the market stage a sustained rebound.

CURRENCIES:

THE DOLLAR strengthened against the yen and euro after the Federal Reserve cut estimates for US economic growth and didn’t signal further stimulus. The Dollar Index, which tracks the U.S. currency against those of six major trading partners, climbed 0.1%, extending a 0.6% jump yesterday. The euro weakened against all of its 16 most-actively traded counterparts. Risk signals for financial stability in the euro area are flashing “red” as the debt crisis threatens to infect banks, ECB President Jean-Claude Trichet said late yesterday in Frankfurt.

ENERGY:

Oil for August delivery fell 1.2% in New York overnight Crude is halting a three-day, 2.2% rally after an Energy Department report showed US stockpiles fell less than forecast and inventories at Cushing, Oklahoma, the delivery point for the New York-traded West Texas Intermediate grade, increased for the first time in four weeks.

COMMODITIES:

GOLD dropped 0.4% on Thursday, snapping a four-day winning streak, as the dollar gained after the Federal Reserve gave no hint of further stimulus. Tin for three-month delivery fell 1.1% while lead dropped 1.45% on the London Metal Exchange. Copper retreated 0.3%. Corn for December delivery lost 0.9%, following a drop of more than 4% yesterday on signs that changing weather conditions may improve crop prospects in the US and Europe.

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