Euro Pounds Daily Brief – 6/11/2006
Summary of Overnight News:
• The FTSE-100 looks to start the week on a cautious note with IG Index predicting it to open 1 point down
@ 6,147, as Wall Street slipped below the key 12,000 level on Friday and as investors stay cautious ahead
of Thursday's rate decision.
• The DJIA ended off 32.5 points at 11,986.04, the Nasdaq Comp fell 3.23 at 2,330.79 and The S&P 500 was
off 3.04 at 1,364.30.
• Meanwhile, Wall Street finished the week under pressure, as a spike in the price of oil and a mixed set of
job data added to jitters over the health of the world's largest economy.
• The Labor Department revealed the unemployment rate hit a five year low, but enthusiasm was tempered as
non-farm payrolls missed market forecasts.
• Back in London, Thursday's rate decision will take centre stage with investors braced for the MPC to raise
borrowing costs to a five-year high in a bid to counter above-target inflation.
• All 35 economists polled by top news agency AFX News expect the MPC to raise its key repo rate by a
quarter point to 5.00 pct, its highest level since before the September 11, 2001 terrorist attacks in the US.
• Over in Asia the Nikkei 225 index closed 14.74 points firmer at 16,364.76, while the Hang Seng was up
62.68 at 18,812.37 by midday.
• Still in Asia, oil prices eased, pulling back from a sharp jump late last week sparked by threats against oil
installations in Nigeria.
• Earlier this morning, New York's main contract, light sweet crude for December delivery, was down 35
cents to $58.79 a barrel from $59.14 in late US trade Friday when the contract had jumped $1.26 .
UK
Figure out Today:
• 0930 Industrial Production, (Sep) % mom Prev 0.1 Exp 0.7
• 0930 Industrial Production, (Sep) % yoy Prev 0.7 Exp 1.0
• 0930 Manufacturing Production, (Sep) % mom Prev 0.4 Exp 0.3
• 0930 Manufacturing Production, (Sep) % yoy Prev 1.5 Exp 2.4
Europe
Figures out Today:
• 0900 EA PMI Services (Oct) Prev 56.7 Exp 57.0
• 1000 EA PPI (Sep) % mom Prev 0.1
• 1000 EA PPI (Sep) % yoy Prev 5.7
EURO USD @ 1.2703 GB POUNDS USD @ 1.8983 GB POUNDS EURO @ 1.4942 USDJPY @ 118.17

Tuesday 7/11/2006

• Dollar holds firm on political stand off
• China forex reserves hit $1,000bn
• Caution as the market waits for UK rate rise
• Japan signals pre-emptive rate rise
• ECB member warns of ‘alarming inflation’
• Oil gains ground on OPEC production cut warnings

US Dollar:

The dollar initially hit one month highs late Monday on fears of a political stand-off in the US. With polls
showing the republicans trailing ahead of today’s mid-term elections, a Democratic win could boost the
dollar. This would effectively make Bush a dead duck and ‘limit his ability to crank up global geopolitical
risk’, commented an ING economist.
Meanwhile gains were pared as Bank of Japan governor Fukui said that the central bank would act pre-emptively
to quell any incipient spike in inflation. The market took the comments on board and consequently
bought the yen against the dollar.

Euro:

European Central Bank (ECB) member Axel Weber commented that the European inflation outlook was
alarming and called for vigilance, increasing interest rate rise speculation.
Meanwhile traders are still expecting a rate hike in December following on from ECB President Trichet’s
hawkish comments on Thursday.

Pound:

Investors are still looking for the Bank of England to raise rates to 5.0% on Thursday. Today we see
the release of the British Retail Consortium high street sale figures for October. A dip is expected after
the weak distributive trades survey.
Meanwhile the FTSE is looking for a good start after Marks & Spencer post a half year profit rise of 32%

General News:

• China’s foreign exchange reserves top $1,000bn for the first time, growing at a rate of $30m an
hour thanks to the differential between imports and exports. This puts the spotlight on the renminbi
with many foreign investors seeing it as deeply undervalued.
• Oil prices ticked up as investors digested the news that OPEC are warning of further production
cuts next month. Oil had traded down as stockpiles had grown. This morning oil prices steadied
at $60.02 per barrel.
• In Australia investors are waiting for the Reserve Bank of Australia to lift the cash rate by 25
basis points to 6.25% tomorrow.

GB POUNDS/ USD 1.9037
GB POUNDS / EURO 1.4923
EUR/USD 1.2756
GBP/JPY 224.25
GBP/AUD 2.4615
GBP/NZD 2.8367
GBP/ZAR 13.9135
GBP/CHF 2.3834
GBP/CAD 2.1446
GBP/SGD 2.9749
GBP/THB 69.785
GBP/HKD 14.8214

Wednesday 8/11/2006
• Dollar sent tumbling by Fed official speech
• Democrats seize control of House of Representatives
• Reserve bank of Australia raises rates
• German trade surplus rises more than expected
• Sterling continues to firm ahead of BoE
• Oil tumbles on fund selling

US Dollar:
The dollar took another hit yesterday following a speech from the Fed’s Yellen who said that some
countries with excess savings may choose to invest less money in the US. This should have come as no
surprise to the market as Alan Greenspan, former Federal Reserve chairman, warned of central bank
diversification several times in recent months.
Losses were however pegged back as Chicago Reserve Bank president Moskow reiterated that inflation
risks were still skewed to the upside and that ‘additional firming of policy may yet be necessary’.
Elsewhere in the US the Democratic party won control of the House of Representatives-the first time in
12 years. The Senate however remains too close to call.

Euro:
The German trade surplus numbers came out higher than expected at €15.2million helped by a sharp
rise in exports.
The Euro looks to be fairly stable as the markets price in a December rate hike.

Pound:
Sterling continues to look strong ahead of tomorrow’s Bank of England interest rate meeting where
analysts are expecting a 0.25% rate hike. All eyes will be on any additional comments for clues as to
future actions of the Monetary Policy Committee
Meanwhile the National Institute of Economics and Social Research issued an upbeat forecast of the UK
economy, estimating that the economy grew at a quarterly rate of 0.7%.
Stocks look set for a rocky opening as news of President Bush’s poor show in the US mid-terms hits the
markets.

General News:
• In Australia the reserve Bank of Australia raised interest rates by 0.25% to 6.25% as expected.
Profit-taking in long positions has caused minor softness in the Aussie and Kiwi dollar.
• Oil prices dropped 4% as funds sold the price down ahead of OPEC’s announcement that production
will be cut. Oil now trading $58.96.
• Airbus owner EADS took a blow as Fedex cancelled their order for the gargantuan A380.

GB POUNDS/US DOLLAR 1.9057
GB POUND/EURO 1.4917
EUR/USD 1.2772
GBP/JPY 224.19
GBP/AUD 2.4751
GBP/NZD 2.8452
GBP/ZAR 14.0333
GBP/CHF 2.3815
GBP/CAD 2.1551
GBP/SGD 2.9748
GBP/THB 69.951
GBP/HKD 14.8360

Thursday 9/11/2006
• Dollar flat as direction sought
• US trade data due out this afternoon
• Bank of England rate decision at noon
• Aussie dollar drops on employment data
• Euro trading range bound
• Oil rises as US distillate inventories drop
• Rand labours around 14.00

US Dollar:

The Greenback stumbled near its lows against the major crosses as investors wrestled with the impact
of the outcome of the US mid-terms.
Trade is due to be flat this morning as the markets wait for US trade numbers at 1330 GMT. The figure
is expected to rise to $66.9 bln after the August low of $69.9 bln. The August figure could prove to be
the peak in the cycle given the decline in energy prices.
Stock markets in the US were modestly down as the uncertainty from the mid-term result weighed equities
down.

Pound:
The Bank of England’s Monetary Policy Committee announce the interest rate decision for November at
noon today. The markets are fully expecting a 0.25% rate hike to a 5-year high of 5.0% to counter the
above-target inflation. Anything less than a hike will send the pound into freefall.
The UK trade balance is released at 0930 GMT and is set to fall slightly as energy prices ease away
from their August peaks.

Aussie Dollar:

The dollar continued to fall in overnight trade as employment data for October showed the unemployment
rate dropped to a 30-year low.
This and the slightly dovish tone from the Reserve Bank of Australia has seen the dollar drop by 2cents
since Tuesday.

General News:

• The Euro continues to do gain or lose ground. Markets are still looking for any hint that rates
would not be going up in December.
• The South African Rand still labours around the 14.00 mark against sterling as investors look for
direction.
• US distillate inventories dropped on Wednesday causing oil to rise by over a dollar to $59.59

GB POUND/US DOLLAR 1.9071
GB POUND/EURO 1.4917
EUR/USD 1.2782
GBP/JPY 224.54
GBP/AUD 2.4854
GBP/NZD 2.8692
GBP/ZAR 13.9802
GBP/CHF 2.3817
GBP/CAD 2.1555
GBP/SGD 2.9791
GBP/THB 69.958
GBP/HKD 14.8466

Friday 10/11/2006

• Bank of England raise rates
• US dollar hit on China diversification
• Pound slides against the Euro
• China GDP seen over 10%
• US trade data better than expected
• Disappointing day in the stock market
• Oil rises as US gas stocks wane

US Dollar:

The dollar was aggressively sold overnight as speculation that China means to diversify the $1 trillion
plus reserves entered the market.
Some analysts think the move is overdone as China has been diversifying away from the Greenback for
a number of months now.
Despite stronger than expected US trade data the dollar failed to gain any support. The trade deficit
narrowed to $64.3 bln in September on lower oil imports, coupled with lower oil prices.

Pound:

The Bank of England’s Monetary Policy Committee lifted the cost of borrowing to 5.0% yesterday as the
market anticipated. Despite the rate hike sterling slipped as the MPC’s accompanying statement struck
a neutral one. Dealers had expected a clue as to the future path of interest rates looking for signals
that rates may rise again early in 2007.

Euro:

The Euro was the hot currency yesterday posting gains on most major currencies.
Euro buying was started after the neutral BoE comments following the UK rate hike. The move was exacerbated
by ECB member Lorenzo Bini Smaghi commenting that eurozone borrowing costs at their
current level are ‘too accommodating’ and that the ECB must remain ‘very vigilant’ in heading off inflation
expectations.
The Euro was also the man beneficiary of the China diversification rumour as the dollar was aggressively
sold to buy the Euro. The Swiss franc also gained ground from dollar selling.

General News:

• The stock markets had a disappointing day yesterday as oil prices rose and US election worries
weighed on the minds of traders.
• The South African Rand followed the Euro overnight and posted some fairly hefty gains.
• US gas inventories dropped yesterday on seasonal demand causing the price of crude to rise to
$61.32.

GB POUND / USD 1.9118
GBPOUND/ EURO 1.4849
EUR/USD 1.2871
GBP/JPY 224.52
GBP/AUD 2.4882
GBP/NZD 2.8680
GBP/ZAR 13.8022
GBP/CHF 2.3647
GBP/CAD 2.1559
GBP/SGD 2.9790
GBP/THB 69.974
GBP/HKD 14.8800