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

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