Euro Pounds Currency Brief November 2007

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Friday 30/11/2007 Interbank
GB POUNDS / EURO 1.4019

UK house price growth plummets
Bank of England in twists over future policy

Pounds:
The pound remained remarkably stable yesterday despite very bearish comments from the MPC. The economy is undoubtedly slowing however the pound, and interest rates, are very bid on the back of LIBOR rates on the 3-month money market.

With MPC members noting that the economy is indeed coming to a grinding halt, the future path of interest rates remains very uncertain.

Today we see GFK consumer confidence which is forecast to dip by a point at 0930GMT so expect to see volatility mid-morning.

Euro:
European growth stays firm on the back of non-negative figures and a flow from the Middle East states to the euro against the dollar. Today we see confidence figures from Europe which should continue to support the single currency.

General News:
• Look for the pound to resume its decline. The recent shortage in global liquidity may have helped to give the currency some short-term respite, especially while the Bank of England was playing down any suggestion of an early interest rate cut.

• But, as the decline in U.K. house prices accelerates, credit conditions continue to deteriorate and consumer spending shows signs of being hit, any lingering support for sterling will likely fade away.
 

Thursday 29/11/2007 Interbank
GB POUNDS / EURO 1.3992

UK sees biggest monthly house price decline since 1995

Pounds:
UK Nationwide house prices released this morning dropped 0.8% from October, the biggest monthly decline since 1995. Nationwide predicts house prices will stagnate next year having gained as much as 8% in 2007 with borrowing costs at a six-year high and a slowdown in economic growth forecast for 2008.

A fairly strong day from the pound yesterday despite fairly dovish noises emanating from the MPC. This time Lomax speaking in the Hull Daily Mail said that as with the Fed, the MPC faces a real dilemma in the coming months to maintain financial stability. She did follow the MPC projections outlined in the inflation report however said these were ‘projections but not promises’.

The SONIA swap curve currently has a 40% chance of a rate cut b the MPC in December which is down from close to 70% last week. Given voting patterns and recent comments it seems unlikely that the MPC will opt for a December rate cut.

Plenty of data to look at today including CBI data and M4 lending.

Euro:
The euro came under pressure yesterday for the first time in a couple of days mainly from the dollar on the technical break down through 1.48.

The ECB opted not to make any comments yesterday for a change however status quo remains until we see some directional data from Europe. It is possible that troubles in France are having a slightly negative effect on currency levels.

No data today.

General News:
• Australian CAPEX came in much lower than expected yesterday however carry trade reversals ensured the dollar managed to regain a firmer footing having had a fairly tough few days.

• Carry trading saw the yen fall away from recent highs as stocks and confidence rallied back.

• Japanese CPI is forecast to rise when released this evening.

• Oil dropped again yesterday with inventory data disappointing and negative technical signals following the failure to hit $100. Oil is this morning $92.53.

Wednesday 28/11/2007 Interbank
GB POUNDS / EURO 1.3948

Bank to bank borrowing costs rise again

Pounds:
MPC member Andrew Sentance said yesterday that UK growth had turned and that a slowdown was underway however stressed that the MPC’s job of setting rates has become much more difficult with the growth issues coupled with rising inflationary pressures caused by rising commodity and oil prices.

LIBOR (bank to bank lending) rates rose again yesterday which will not be welcome in the run up to Xmas and producing a follow-on effect in the futures markets.

The Times this morning reports that 1 person in 3 will face a large jump in mortgages. 25% of borrowers already have huge debt issues while 12% have missed one mortgage payment in the past 6 months.

No UK data or speakers set for today.

Euro:
Yet more fairly hawkish noises from the ECB this time from President Trichet. He said notwithstanding the recent credit squeeze ECB rates would be undoubtedly higher than they are now.However on the other side of this he seems to be setting the euro-dollar currency up for a fall by agreeing with the US that the dollar needs to be stronger.

Not too much to look at today with some member state data due this morning.

General News:
• The headline figure from Switzerland is due out today. The KOF Leading Indicator is due to fall today with the danger of the figure coming in way under expectation.

• Aussie data dipped yesterday highlighting worries in the construction sector pushing the already under pressure dollar lower yet again.

• Oil fell again yesterday with falling confidence and expectations of a build in reserves when figures are released later on this afternoon. Oil is currently $93.95.

 

Tuesday 27/11/2007 Interbank
GB POUNDS / EURO 1.3955

Central banks look to add liquidity in run up to Xmas

Pounds:
The pound did remain fairly well supported yesterday stuck in a mainly sideways channel in what was ultimately a quiet day.

Stock markets remain fairly jittery with mining and banking stocks continuing their volatile trading.

MPC Chief Economist Charlie Bean outlined the need for a tight monetary policy citing the recent rise of Chinese and Indian economies and the knock-on effect their voracious demand for commodities forcing prices higher and higher. Bean is generally considered as a dovish member of the gang so these comments may not go wholly unnoticed.

Nothing on the data front in the UK today however both Blanchflower and Sentence are set to speak.

Euro:
The euro is still a fundamentally strong currency based on the ECB’s monetary policy and their apparent resistance to lowering rates to ease liquidity issues. In an effort to avoid a credit squeeze around Christmas the ECB look to be gearing up to add a boat load of liquidity as LIBOR rates started to creep up again yesterday.
ECB member Papademos said that the bank will add extra cash if needed. German IFO and State CPI today which should add some interest to the European markets.

General News:
• The Antipodean currencies were on the tough end of the flight to quality following the stock market jitters last night. The South African Rand was absolutely whacked last night losing almost 4000 ticks.

• The Japanese are now jumping on the yuan revaluation wagon calling for China to let their currency appreciate in order to stem the level of exports and money inflow.

• Oil fell short of the $100 level yesterday as stock markets took a hit. The obvious thinking is that growth will moderate and oil demand will moderate on the back of this. Today we are trading $97.20.
 

Monday 26/11/2007 Interbank
GB POUNDS / EURO 1.3908

UK Hometrack house prices ease again for second month

Pounds:
Sterling continues to tread water with some direction being sought from an as-yet undecided MPC. Overnight Hometrack figures released added weight to calls for the MPC to cut rates as they came in lower for the second month running. Although growth is still positive there are definite signs of a slowdown. Hometrack places some of the blame on the media fall-out from the summer credit crunch.

This week ought to be fairly quiet with none of the major figures due for release. Amongst other things we see Nationwide house prices, CBI distributive trade and GFK consumer confidence.

Branson’s Virgin Group looks to be the favourite for a buy-out of Northern Rock and further details are set to be released this morning.

Euro:
The euro should remain strong in the near term with fears over rising inflation beginning to seriously worry the ECB members. Member Stark said the ECB takes very seriously the October inflation forecast of 2.6% although it was noted that risks to growth have risen.

ECB member Bini-Smaghi backed the US economy commenting that the FX rates at the moment to not reflect fundamentals.

Five speakers due from the ECB today so eyes on the newswires

General News:
• New Zealand's trade deficit came in much wider than expected overnight causing the Kiwi to slide on the markets.

• The Aussie dollar should regain some composure this week following the election results with the voters electing Labour’s Rudd as new PM.

• Oil again looks to be closing in on $100 and s small stock market rally could see oil rise to the 3-figure level. We are currently at $98.80.
 

Friday 23rd/11/2007 Interbank
GB POUNDS / EURO 1.3895

Ex-MPC member Lambert: no ‘dramatic’ impact of credit squeeze

Pounds:
Another fairly poor session in the UK with the euro forcing the pound lower. MPC member Rachel Lomax spoke overnight and highlighted the problems faced by the UK over the ongoing liquidity squeeze. She said that monetary policy remained on the ‘restrictive’ side and the rate setting committee faced a balancing act controlling inflation and UK growth.

On the other side of this, ex-MPC member Lambert said that the current credit problems will have no lasting effect on the UK economy and remained fairly bullish on the outlook of the UK. He did mention the risks to the UK stock market concerned with the liquidity squeeze.

UK GDP is set to remain unchanged today; no speakers due.

Euro:
Monsieur Trichet underlined the intentions of the ECB yesterday in terms of their view on inflation. He did however comment on the downside risks to growth and the risks posed to Europe by the current levels of the euro on the FX market. He also commented on the inherent problems In the French public sector.

Trichet is set to speak again this morning so again, eyes on the newswires. Elsewhere there is nothing to report on the data-front.

General News:
• The yen ramped yesterday to the detriment of the emerging yield currencies with falling confidence in global markets. The yield hogs cashed up their short yen positions and squared up on the back of risk reversal.

• Canadian growth dropped yesterday which pushed the dollar lower on global markets.

• Oil looks to be heading towards $100 with many of the Texas gold traders using the level as a near-term target. Oil is now $97.56.

Thursday 22/11/2007 Interbank
GB POUNDS / EURO 1.3904

MPC minutes 7-2; pound under pressure

Pounds:
The UK came under pressure yesterday with fairly soft comments in the MPC minutes and a very sharp move down in the stock market. The minutes showed that 2 members of the committee voted for an immediate rate cut however there were stark warnings that acting too quickly would not be in the interest of the economy as a whole.

The FTSE took a hit on the back of rumours that Bank of America may be writing down profits on the back of sub-prime losses in a similar manner to Citi.

Nothing of note set for release today however this evening MPC member Lomax speaks which should be worth listening out for.

Euro:
The euro is again looking robust with the ECB unlikely to change their stance on interest rates along with rising money market borrowing costs.

Inflation is again set to rise so the central bank will be forced to keep one eye on rising costs and act appropriately.

Amongst other ECB members Trichet is due to speak later on this afternoon.

General News:
• The stock markets fell yesterday so as per usual the yen rallied as the carry traders reversed their positions. The yen has suffered overnight on the back of fairly dire comments from the BOJ regarding the state of the domestic and global economy.

• Oil approached $100 yesterday prior to the inventory data yesterday before falling away to current Levels of $97.49.
 

Wednesday 21/11/2007 Interbank
GB POUNDS / EURO 1.3935

MPC minutes expected 6-3

Pounds:
Not a great deal to shout about in the UK markets yesterday. The pound remained firmly offered yesterday on the back of Darling’s speech on Northern Rock, MPC minutes today and MPC comments. Northern Rock shares fell to a huge low around 60p which did nothing for investor confidence.

MPC’s Andrew Gieve said that they intervened in the NR crisis to avoid systemic risks to the banking process and that the money markets are likely to see renewed tightening. This seems to be fairly hawkish in the grand scheme of things.

Today MPC minutes are due to come in at 6-3 and risks to growth are expected to be highlighted in the accompanying comments.

No other data due.

Euro:
The euro again stayed in high demand hitting all-time highs over the dollar and posting the highest mark over the pound since 2003.

The euro looks to be the go-to currency at the moment when markets look to be going awry which is a bit of a mindset change in global markets.

Italian Retail Sales is the release of note today.

General News:
BOC’s Duguay said yesterday that the Canadian economy is facing downside risks and that the bank are concerned about the level of the CAD on FX markets. As a result the dollar fell overnight and is now trading above 2.00 against the pound.

• The stock markets look like they could be set for a down day with the Nikkei posting heavy losses in the Asian trading session.

• Oil rallied overnight on the back of a falling dollar and worries of poor numbers in inventory data due this afternoon. Oil is now $98.79.

Tuesday 20/11/2007 Interbank
GB POUNDS / EURO 1.3980

UK credit squeeze could last until Christmas; reflected in futures

US Dollar:
The dollar has the potential to rally from these levels if some of the speculation in the market is correct.

Interest rate futures have an almost certain rate cut priced in for December however if some of the commentaries are true the Fed may surprise markets and opt for a no move. A lot of the noise from the Fed has been fairly moderate which may indicate that the current interest rate levels may be enough to weather the credit and housing storm and stimulate growth.

Today the Fed publish their 2008 economic forecast and they are likely to show the economy to pull through the near term rough patch however are likely to note downside risks to the forecast. The forecasts coincide with the November minutes which are released this evening.

There are rumours of an emergency Fed meeting circulating at the moment from Asian markets.
Pound:

The main UK news was not on the FX markets but a very poor session on the UK stock market. A lot of the blue-chips took a battering in stormy trading conditions with Northern Rock fears and possibilities of large banking write-downs. Also banks are getting squeezed on the money markets pushing up borrowing costs which also caused some of the sell-off.

The pound was relatively unaffected by the stock market jitters holding firm on cable and taking on small losses against the euro.

All eyes are still on the MPC minutes tomorrow which could go either way but given the dovish inflation report could be not good news for the pound.

Today we have Public Sector spending and borrowing figures and CBI Trends.

Euro:
ECB member Klaus Liebscher yesterday said that he expected inflation to remain elevated based on energy and food prices well into 2008 however inflation rates are set to moderate in the latter part of the year according to projections.

ECB’s Bini-Smaghi speaks later on this morning which will be worth watching however the usual hawkish rhetoric is expected.

Not much else to report from the Eurozone this morning.

General News:
• China yesterday expressed its concern over the weak dollar with officials noting that the reserves held In dollars (thought to be 66% of all reserves) are becoming difficult to manage and undervalued.

• Canadian inflation is expected to rise when figures are released at lunchtime today which should see the CAD rise following a week of losses.

• Oil is treading water at the moment with the ongoing OPEC meeting which is taking precedence over the stock market-lead moves. Oil is now $94.81.

Monday 19/11/2007 Interbank
GB POUNDS / EURO 1.3986

UK’s Rightmove housing index slows again

Pound:
Sterling was fairly flat on Friday ahead of a what should be a quiet couple of days leading up to the minutes of the MPC rate-setting meeting on Wednesday. There is a split in consensus in the markets with some expecting 8-1 with Blanchflower maintaining his calls for a cut however he may be joined by Kate Barker making the vote 7-2. Following the inflation report a 7-2 would not be a surprise.

Rightmove house prices fell monthly indicating that the housing market had stagnated in the last four months however this is hardly the crash that some were anticipating. Prices should remain underpinned by a lack of supply however the reaction post-bonus season this year might be slightly negative.

Comments last week from Mervyn King, governor of the Bank of England, prompted sterling’s slide as he said UK growth would “slow sharply” next year.

No data today and no speakers.

Euro:
The Euro took another strong step in the markets on the back of trade balance data released on Friday.

The concern over the level of the Euro on the FX markets and the knock-on effect of exports seems to have as yet materialised as expected.

Trichet thanked Fed Chairman Bernanke for his comments on the level of the USD and said that sharp and abrupt moves in the FX market were ‘unwelcome’.

No data but 3 ECB speakers due today.

General News:
BOC’s Dodge said at the G20 meeting that the CANADIAN DOLLAR had borne the brunt of the US DOLLAR depreciation over the last month which should see the CAD lose ground as the USD gains.

• Japanese PM Fukuda said that he had no concerns over a global recession.

• Independent today speaks about changing opinions over the USD. ‘Gisele, Jay Z and Taj Mahal…’

• Oil remained firm with OPEC seemingly split over the holdings of USD given the current levels of the greenback. Oil is now $95.00.

Friday 16/11/2007 Interbank
GB POUNDS / EURO 1.3986

Rumours that a UK institution has borrowed money from BOE

Pounds:
Another very average day for the pound yesterday with the Inflation Report still ringing in the market’s ears.

As yet we are still undecided as to the amount of rate cuts next year hence the uncertainty in the market.

There are worries that another UK financial institution has approached the Bank Of England for £3bn emergency funding. If confirmed this will not be good news for the pound.

Borrowing costs have again risen to the highest point since the August credit squeeze as bank to bank lending becomes more costly with credit lines being questioned. It could be a hard Christmas for the consumer.

Nationwide expects to see house price inflation moderate and hit 0% in 2008 on the back of raised borrowing costs and a slowing economy. Prices should remain underpinned by a lack of supply.

No figures today.

Euro:
Another day another ECB member commenting on the perils of inflation. This time we had one of the many hawks Claus Liebscher commenting that inflation could be ‘markedly’ higher than expected and that the ECB will act in a ‘firm and timely’ manner.

European trade balance is the figure of the day today however not too many people seem to be concerned with European data releases at the moment.

General News:
• BoJ minutes showed that the Japanese are worried about the apparent weakness in the US economy and the problems posed in the domestic economy by the strong yen and high oil prices.

• Jean-Pierre Roth of the Swiss National Bank does not see a loss of confidence in the dollar and that the current weakness is not due to Chinese fears of diversification but a change in direction of the Federal Reserve policy.

• Oil dipped yesterday almost mirroring the stock market. There is very little in the way of geo-political news to focus on so traders are looking to the stock market for guidance. Oil is now $93.62.

Thursday 15/11/2007 Interbank
GB POUNDS / EURO 1.4012

Sterling nosedives on BOE report

Pounds:
Sterling took a hit on the markets yesterday as the BOE released their Quarterly Inflation Report. The main comment was that the BOE saw rates at 5.5% in Q1 of 2008, economic growth was slowing and inflation was more or less on target.

The main area of uncertainty in the market is the credit side. Despite some newspapers going slightly overboard the UK can probably look forward to 2 rate cuts in 2008 however the MPC will keep a close eye on inflation given the current oil and food prices.

Barclays are ready to allay market fears of a huge writedown releasing an emergency statement prior to the end-of-year trading update. The losses are expected to be smaller than the $10bn rumoured last week.

UK Retail Sales this morning are expected to be largely lower than previous readings.

Euro:
One day was indeed too much for the ECB not to tell the markets that their focus was on inflation with Liikanen breaking the radio silence. He said that inflation is the key concern for the central bank but the ECB must maintain liquidity in the financial markets.

Today in the Eurozone we see CPI which is expected to remain level year-on-year and tick up slightly month on month.

No speakers due today.

General News:
• The dollar should gain some support fro comments emanating from China as PBOC’s Yi commented that they were to keep the USD as the primary reserve currency.

• Some of the carry trade activity crept back into the markets yesterday with everyone looking for a cheap buck. Confidence looked like it was returning with the yen coming under pressure so expect any sharp stock moves to reverse these losses.

• Oil rallied yesterday as the stock markets ticked back up. Global confidence sharpened up and as usual oil followed on the back of growth prospects. We are currently at $93.83.

 

Wednesday 14/11/2007 Interbank
GB POUNDS / EURO 1.4198


UK CPI rises above BOE target of 2.0%

Pounds:
The news of the day from the UK was that headline inflation rose above the Bank of England target of 2.0% coming in at 2.1%. The rise was fuelled by rising oil prices and food prices according to the National Office of Statistics. Petrol rose 2.7% per litre in October alone and air travel rose in comparison to an expected seasonal fall. Core CPI (excludes energy, food, alcohol and tobacco) remained steady at 1.5%.

Today we have the BOE Quarterly Inflation Report which will be examined closely for any clues as to the timing of the next MPC move. The release is due at 1030GMT so we should see some volatility creep in.

This morning sterling is looking fairly strong but will probably stay around these levels up until the release of the report.

On the data front today we have employment data at 0930GMT.

Euro:
Not much to report from the Eurozone being brutally honest. The euro took a small hit on the back of the carry trade merry-go-round with some of the reversals being taken out already.

No noises from the ECB overnight which is somewhat surprising as the bank likes to keep up regular communication with the markets.

At 0800GMT we are expected Trichet to speak.

Data today is focused on Italian inflation.

General News:
The Bank of Japan are likely to leave rates on hold at 0.5% until at least Spring 2008 according to a survey by Nikkei Inc. with a falling stock market, appreciating yen and higher oil prices a near term rate hike seems unlikely.

• Chinese Retail Sales rose to an 8-year high rising to 18.1% year-on-year. According to officials growth is caused by rising demand an inflation.

• Oil dipped yesterday following the recent rally before rebounding on the stock market rally. The Venezuelan President said oil could reach $200 if the US invades Iran. Oil is now $ 91.67.
 

Tuesday 13/11/2007 Interbank
GB POUNDS / EURO 1.4132

Raging inflation in wholesale prices cut likelihood of rate rise in UK

Pounds:
Not a great day again for the pound yesterday against the majors. With the dollar rising and the euro still holding it’s own the pound came under some selling pressure. RICS house prices fell for the third month in a row according to figures overnight.

High prices, interest rates and credit worries have hit every sector apart from London and the downturn in prices seems to be becoming more pronounced.

Yesterday Producer Prices rose more than predicted by analysts mainly on the back of rising oil prices which will pose a problem for the MPC who release the Quarterly Inflation Report this week. This rise in output prices certainly won’t please the committee.

Today CPI is set to rise slightly in October again mainly caused by rising oil and food prices.

Euro:
The euro maintained its strength yesterday despite pressure from the dollar as the single currency remains strong and the ECB continue to make hawkish noises.
According to the IMF the ECB will have to tighten further if the credit market turmoil settles down.

Inflation remains a concern for the central bank and Trichet continues to signal his intentions to keep a tight rein on inflationary pressures.

Industrial Production is set to fall sharply today at 1000GMT.

General News:
The Bank of Japan opted to leave rates on hold last night at a stable 0.5% which was the unanimous expectation of the market.

• Japan’s prime minister warned that the yen is appreciating too rapidly. He warned that if the exchange rates change rapidly the central bank will intervene.

• Chinese inflation hit a decade high of 6.5% which will only strengthen calls to let the yuan appreciate.

• Oil dipped again on stock market losses and is currently trading $94.43.

Monday 12/11/2007 Interbank
GB POUNDS / EURO 1.4229

Barclays deny rumours they are about to write down $10bn

Pounds:
A tough day on the markets for the pound on Friday with huge losses posted on cable. Cable managed to drop by almost 3 cents on the day and has this morning gapped lower to under 2.08. the initial wave of selling came as rumours started to circulate that Barclays were about to write down $10bn in losses directly related to the sub-prime sector. Barclays were quick out of the blocks to deny the rumours but given what happened to Citi it is not beyond the realms of possibility that another bank may have sub-prime losses. HSBC are reportedly writing down another $1bn.

This morning markets have sterling again on the back foot with the pound trading down on the euro, the dollar and the yen. UK PPI is set to dip for October when released at 0930GMT.

Euro:
The euro remained flat to fairly positive on Friday as it remains a stable currency to invest in amid the financial turmoil in global markets. The ECB’s transparency seems to be paying off with investors happy to stick money in a fairly low yield but stable currency. What is unclear, however is that banks are able to borrow from the ECB without disclosing that they have borrowed funds. This may prove to be an issue after year end.

Liebscher is due to speak this evening otherwise a fairly quiet day.

General News:
- The yen has rallied significantly over the past 24 trading hours with the carry trade being unwound thanks to the uncertainty on the markets.

- On the back of the above carry trade the emerging currencies such as the Aussie, Kiwi and Rand have lost a fair amount of ground.

- Oil looks to have levelled out at $95 with the stock markets posting losses and growth fears surrounding the major users. This morning we are trading at $95.17.

Friday 9/11/2007 Interbank
GB POUNDS / EURO 1.4355

MPC holds rates at 5.75% as expected; no clues for next month

Pounds:
As expected the MPC opted to leave rates on hold at 5.75% yesterday resisting calls from the consumer side of the market to cut rates. The MPC have the opportunity to release comments along with the headline number but on this occasion declined to do so. The minutes released in just less than a fortnight will make interesting reading and will reveal just how tight the decision to keep rates unchanged was. At the moment there is little evidence to suggest a cut will be needed much before Q2 2008.

The pound did post gains on the back of the decision and is now trading at a 26-year high over the dollar and clawed back some very good gains over the emerging market currencies.

Today we have the UK trade balance which should improve slightly given the recent pound weakness.

Euro:
The ECB left rates on hold yesterday which was not really a surprise to the markets. Trichet is usually transparent in the language he uses in the press conference however yesterday he chose to play his cards close to his chest. The overall view from the markets is that the ECB are more than likely to keep rates on hold for the foreseeable future whilst the bank takes note of economic data before making a decision.
Industrial Production from member states dominates the newswires this morning.

General News:
• Pressure is mounting on China to let the yuan appreciate, particularly from the US, as the current levels are now beginning to be seen as a source of unfair competition.

• Shares in the banking sector fell sharply yesterday as doom and gloom surrounds institutions amid rumours that the ratings on mortgage-related investments will be slashed.

• Oil remains very volatile with the US dollar trading lower.

Thursday 8/11/2007 Interbank
GB POUNDS / EURO 1.4340

MPC set to keep rates on hold; shadow MPC split over a cut

Pounds:
The MPC conclude their 2-day meeting today and announce their decision on interest rates. The committee are widely expected to keep rates on hold at 5.75% basing their decision on inflationary pressures rather than the perceived slowdown and credit issues.

Governor King is now under pressure to keep the bank on the straight and narrow given the questions raised by his performance in the recent liquidity squeeze.

The shadow MPC (Times) is split 6-3 with the majority holding rates and the 3 dissenters looking for a cut by a quarter. We won’t see the results of the MPC vote for another fortnight however any comments released today will be looked at very closely.

The decision is at 1200GMT and Halifax House Prices are out at 0800GMT.

Euro:
The European Central Bank release their rate decision at 1245GMT today and they are set to follow the lead of the MPC and keep rates on hold for the moment; this was well flagged in the previous month. In the press conference following the meeting Trichet could signal a near-term hike for December but after that the future movements are open to data and interpretation.
Otherwise not too much to look at with Liikanen is due to speak this evening.

General News:
- The stock market took a hammering last night on banking sector worries and the Dow had it’s worst day of the year yesterday.

- The Aussie employment index came in softer than expected overnight taking some of the shine of the Aussie dollar.

- Oil dipped yesterday on the back of inventory data. Drawdowns were expected over 1 million barrels but came in vastly below that number. This morning oil is trading $95.96.

Wednesday 7/11/2007 Interbank
GB POUNDS / EURO 1.4321

UK Consumer Confidence / Spending slips

Pounds:
The pound struggled yesterday following poor data from the off regarding high street sales. Overnight new figures from Nationwide showed a slight drop in consumer confidence however a rather more considerable drop in consumer spending. Confidence slipped by a point however spending dropped from 85 to 77 amid the credit squeeze however the outlook on employment and household financing remains fairly positive.

A rift between MPC Governor King and Chancellor Darling could see the Governor without a job following a very public fallout over Northern Rock. King’s conduct has been called into question by ore than one MP and plenty in the markets.

Today we have BRC shop price index as the highlight of the day at 1030GMT.

Euro:
Another solid session for the euro posting good gains over the dollar and moderate gains on the pound.

A major German name was known to be buying euros aggressively yesterday and the demand again rose on news of China’s proposed diversification.

German Industrial production is due to fall this morning so the euro rally could come to an end this morning however the carry trade demand should see the euro remain supported.

General News:
- The Reserve Bank of Australia overnight opted to raise rates to 6.75% pushing the currency higher. Costello said that the rise was on the inflation outlook for the economy and said he was ‘sorry’ that people will have to pay more on mortgages.

- The talk this morning is now of a fire sale of securities after a downgrade of complex financial instruments.
Insurers could take on some massive losses on the back of the downgrade.

- Oil pushed through $98 overnight on dollar weakness. The rally in Texas gold also saw a very sharp rally in actual gold prices. Oil is now $98.01.
 

Tuesday 6/11/2007 Interbank
GB POUNDS / EURO 1.4366

Half of UK shoppers are being refused credit cards

Pounds:
Not a great day for the pound with plenty of rumours circulating about UK lenders approaching the Bank of England for liquidity, yesterday Alliance & Leicester were on the receiving end of the rumour mill.

Overnight we have had more poor news from the UK with figures confirming the BRC downturn leaked over the weekend and NIESR results showed that GDP had only risen by 0.7% in the 3 months to the end of October, decelerating from 0.8% to the end of September.

On a slightly brighter note PWC see the housing market cooling rather than undergoing a crash and Marks & Spencer reported solid results in difficult trading conditions.

BOE Governor Mervyn King said that it would be ‘several more months’ before banks return to normal.

Euro:
The euro seems to be performing well by keeping a low profile posting more gains on the dollar this morning and trading on an even keel against the pound. It would seem that no news is good news for the single currency with very little in macro data moving the market or indeed bad news from European banks.
We do have European PPI today and this is actually forecast to rise slightly.

General News:
• New Zealand’s commodity prices rose by 1.4% this month which will again increase the pressure on • the RBNZ to raise rates yet again.

• The press this morning is not particularly bullish about stock markets with the FT reporting a ‘blood  bath’ and the Telegraph referring to a ‘plunging’ market.

• According to Barclays 16% of sub-prime mortgages taken out in Jan 06 are now in default in the US.

• Oil remained near highs yesterday which came as a bit of a surprise given the falling stock markets.

• This morning oil is trading at $95.11.

Monday 5/11/2007 Interbank
GB POUNDS / EURO 1.4401

UK BRC figures leaked: way down on previous months

Pounds:
The UK markets are now awaiting the November decision from the Monetary Policy Committee and they are widely tipped to keep rates on hold despite calls for a cut to put some liquidity back into the markets. The Times is calling for a rate cut this morning and the Observer published the leaked BRC numbers which are well below expectations. The signals are however mixed with growth seemingly slowing but inflationary pressures lying firmly to the upside.

There was a rumour of Friday that Barclays had approached the BOE with a view to accessing the emergency funding pool. A prominent analysts released a report commenting that they saw RBS and Barclays posting significant trading losses on the back of sub-prime. Industrial production set to slide today.

Euro:
A fairly quiet session again for the euro with the currency ending up pretty flat on the day. Against sterling the euro traded around the 1.44 level for most of the day meanwhile the single currency traded slightly up on the dollar for the majority of the day.

European stock markets are due to open lower this morning on the back of banking losses from some of the major investment banks. No European figures today.

General News:
New Zealand average earnings well above forecast raising noises for a rate hike in the near future.

• BoJ’s September minutes show concerns over US and global economies and domestic housing investment looks to be slipping.

• Aussie inflation rises to 0.3% above RBA target.

• Oil still near highs although upward pressure looks to be easing with North Korea set to dismantle a nuclear reactor and the Turkey/Iraq situation falling away. Oil is currently $95.17.

 Thursday 1/11/2007 Interbank
GB POUNDS / EURO 1.4350

MPC’s Bean warns on inflation risks

Pounds:
The pound is looking strong this morning following MPC member Charlie Bean’s comments last night. The chief economist said that the bank have softened the growth outlook on the back of the financial worries in August however inflation risks remain elevated and the MPC cannot afford to relax with regards to inflation. He also said that there was not much evidence of the UK economy slowing just yet, citing ONS statistics.

Nationwide house prices were a lot stronger than expected however these numbers clashed with RICS data which suggested that prices had fallen well below the long-term average.

Today we have CBI numbers along with PMI which are set to fall slightly. This morning sterling is looking nice and solid.

Euro:
Not too much from the Eurozone yesterday with the US taking the driving seat. HICP figures were rumoured to be strong which kept a bid in the market and these rumours were confirmed by the actual data release.

The bond market fell yesterday which kept some support in the euro with traders still unsure whether the ECB will carry out their hawkish threats and actually raise rates.

Nothing on the data front today however uber-hawk Axel Weber speaks this evening.

General News:
• The Australian trade deficit jumped overnight coming in much larger than forecast and adding some pressure to the Aussie dollar.

• The Loonie continues to head higher with the Finance Minister commenting that the market should not look for significant tax cuts in the next year.

• Oil leapt yesterday on the back of the falling US dollar and a massive drawdown in inventories. Prices popped through $96 and now stands at $95.57.