Euro Pounds Currency Brief October 2007

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Wednesday 31/10/2007 Interbank
GB POUNDS / EURO 1.4350

Sterling rallies on the back of Barker comments

Pounds:
The pound rallied yesterday on the back of MPC’s Barker’s comments on monetary policy. The comments about the path of interest rates were interpreted by markets as hawkish and saw the pound rally higher. The comments cast some doubt on the MPC reaction next week with some of the big players calling for a rate cut to ease the credit and liquidity problems.

Nationwide house prices showed an increase on last year; another reason for the central bank to not cut rates as an knee-jerk reaction.

Consumer confidence is set to fall from –7 to –8 today which won't help the pound and it will be worth taking note of MPC’s Bean this evening at 1900GMT.

Euro:
The euro kicked on again yesterday on the back of Swiss National Bank comments with Roth commenting that he saw the euro rising further, specifically on the dollar.

Sweden’s Riksbank raised rates yesterday which also pushed the euro higher.

ECB members are expected to keep quiet until after the US decision this evening.

Italian inflation is expected to rally today.

General News:
• As expected the Bank of Japan kept rates on hold with Mizuno again voting for a rate hike. The Japanese economy may be heading for a small pullback.

• Kiwi business confidence rises pushing the dollar higher.

• Oil dipped yesterday as Mexico re-opened production plants and a large bank predicted oil prices would drop before the end of 2007. Oil is now $89.28.

Tuesday 30/10/2007 Interbank
GB POUNDS / EURO 1.4298


MPC’s Barker: do we need a rate cut?

Pounds:
Uncertainty seems to surround the pound at the moment with mixed data from the economy and somewhat mixed signals from the MPC. A press article quotes MPC dove Barker as saying the MPC is considering whether it actually needs a rate cut citing if the situation is different to what it was in August. This seems to be a fairly hawkish statement given that many market players are looking for a near-term cut.

This afternoon MPC dove Blanchflower is due to speak so any signs of hawkishness from him (he voted for an immediate cut last time out) should see the futures sold and the pound strengthen.

Sterling is fairly flat this morning with a small bid over some of the high yield currencies following their strong rally yesterday morning. Nothing from the UK today.

Euro:
Very little from the Eurozone to move the currency yesterday.

German regional CPI’s crept slightly higher which left a nice bid in the euro. The tick up is unlikely to push the ECB into a rate hike in the near term, especially as there is still a lack of liquidity running through markets.

Gonzalez-Paramo had the inflation drum out again yesterday reiterating that the ECB are set to move should price pressures increase. Three ECB speakers today should keep the market on it’s toes.

General News:
• The yen suffered in early trade yesterday with some of the yield hogs back in town looking for a cheap buck. The high yielders (Rand, Kiwi) rallied on the back of the falling yen however this has reversed slightly in early trade this morning.

• Aussie business confidence fell overnight taking some of the edge off the dollar which was already on the back foot from the carry trade.

• Oil made new highs yesterday with the dollar weakening and concerns over supply during the winter months. Mexico shut down production in some plants yesterday. Oil is now $92.93.
 

Monday 29/10/2007 Interbank
GB POUNDS / EURO 1.4264

UK housing asking prices show first fall in 2 years

Pounds:
Not too much from the Uk to report. Overnight new data released by Hometrack showed that UK house asking price fell in October, the first time it has done so in 2 years. This takes the annual figure to an increase of 4.4% adding to evidence that housing inflation is evaporating.

There is an underlying murmur on the markets that the MPC may be set to cut rates as early as next week and that a failure to do so is merely a one month delay by the bank. The Hometrack released detailed above certainly would support this.

Yesterday David Smith in the Times talked of migrant labour pushing down inflation.

Today we have M4 money supply and mortgage approvals otherwise relatively quiet.

Euro:
The euro is still well bid on yield expectations. Following the slide of the dollar, the euro crept up and posted new highs forcing the single currency to rise against some of the other major crosses.

Underlying rhetoric still points to a hawkish outlook and upside pressure on rates which should see the currency remain well bid on the majors given the downward pressures in the US, UK.

German regional CPI throughout the morning and Gonzalez-Paramo to speak this evening.

General News:
• Figures from New Zealand overnight showed that the trade deficit narrowed quite significantly which has put the dollar on the front foot in early trade.

• Japanese retail sales were firmer than expected however this has failed to have much of an impact on the yen.

• Oil posted new highs this morning on the back of ongoing concerns between Iraq and Turkey and Iranian supply comments. Texas gold is not being helped out by the sliding dollar. We are currently trading at $92.83.

Friday 26/10/2007 Interbank
GB POUNDS / EURO 1.4306

UK commercial property crash could be worse than the 90’s

Pounds:
Not a great deal from the UK yesterday or overnight. NIESR have revised their growth forecasts upwards for 2007 however they have pushed the 2008 forecast downwards, citing benign inflation and a widening treasury deficit.

According to the FT a commercial property crash could be in the offing and a downturn would be worse than that seen in the 90’s. Legal & General have also said the pace of the housing for 2008 is uncertain.

The BoE could win powers to mount ‘covert rescues’ of troubled banks under new proposals from Darling to ‘white knight’ rescue ailing institutions. Interesting given that loose controls by banks have been cited for the recent debt shake out. No UK data today.

Euro:
The euro remains well bid with the increasing likelihood of a Fed rate cut, hence narrowing the interest rate differential between the two economies. The euro is now viewed as the strong currency and many investors are cashing up from the US and heading east.

Trichet has been at pains to stress the importance of the M3 figures which are released today so we could see a very volatile day for the euro. The figures are expected to be fairly flat.

General News:
• The Argentinean government is under close scrutiny, particularly in the bond market as accusations are beginning to emerge that CPI figures could have been rigged.

• Swiss National Bank’s Hildebrand said that if a weak franc emerged as a threat to price stability then monetary policy would have to be reassessed.

• Oil has smashed through the $90 level on the back of supply concerns but primarily Middle East tensions between Turkey and Iraq along with new sanctions imposed on Iran. Oil is currently trading at a high of $92.19.

Thursday 25/10/2007 Interbank
GB POUNDS / EURO 1.4362

Sterling soft on bearish sentiment

Pounds:
The performance from the pound yesterday was a little shy of brilliant with most trades being flat or slightly skewed to the downside. Most of the negative comments on the newswires were concerned about the state of the housing market, particularly in the buy-to-let sector.

The risk at the moment lies with the BoE cutting rates in November and the futures markets are beginning to price this in. The BoE’s financial stability report suggests that the current financial systems are vulnerable to further shocks particularly from the credit side. The burden on British households is increasing leading to calls for an easier monetary policy.

Not much in the way of data today and no speakers are scheduled.

Euro:
Obviously ECB members aren’t speaking to each other regularly after an about turn form Gonzalez-Paramo. After Weber’s very hawkish comments on Tuesday G-P said that rates were now more restrictive than previously and that a rise in CPI would not necessarily lead to a rise in rates.

Today we have the German IFO figure which is notoriously volatile and can lead to market swings. The figure is due to slip slightly but this is almost certain to be an incorrect call.

General News:
• The Reserve Bank of New Zealand today left rates on hold at 8.25% which came as no surprise. The current level of return ought to keep the Kiwi underpinned with the carry traders buying the currency looking for a good rate of return.

• China is now officially the worlds biggest exporter according to data which will only strengthen calls for the yuan to be revalued.

• Oil rallied yesterday after the US inventory data showed a large drawdown in stocks. The contract rallied 2 bucks thro $88 and is now trading $87.93.

Wednesday 24/10/2007 Interbank
GB POUNDS / EURO 1.4373

MPC’s Barker: inflation risks to the upside

Pounds:
A couple of bits and bobs to report from the UK yesterday: CBI figures were moderately weak however these numbers were negated by MPC member Barker and her slightly hawkish comments. She said that market turmoil shifts growth forecasts to the downside, primarily in the housing market however business surveys show no sign of slowing and that inflation risks remain to the upside.

The Guardian is fairly bullish this morning commenting that the crisis in financial markets is ‘unlikely to prompt a property crash, or even bring the upward trend in house prices to an end.’

This morning sterling has started the day slightly soft but nothing to write home about. There are no figures due for release today in the UK and no MPC speakers.

Euro:
The euro remained well bid yesterday on the back of hawkish ECB members and the seeming divergence of rates between the US and Europe. Overnight ECB member Wellink slightly countered some of the recent bullish talk saying that it would take some time for the money markets to resume business as usual which would indicate the current lack of liquidity is set to continue.

European PMI is out this morning and Trichet is due to speak at 1500BST.

General News:
• There are calls for China to undergo a one-off revaluation of the yuan in order to stabilise market anticipation of a further rise of the currency.

• Canadian figures were mainly in line which failed to prompt a sell-off of the CAD.

• Aussie underlying inflation rose again in the 3Q which may see the RBA raise rates ahead of the election in early November.

• Oil continued to slide yesterday and overnight with tensions easing between Iraq and Turkey and N.Korea set to disable nuclear programme. US inventories today. Oil is $85.07.

Tuesday 23/10/2007 Interbank
GB POUNDS / EURO 1.4341

Markets looking for a weak UK inflation report

Pounds:
A mixed day for the pound yesterday with heavy losses coming against cable and the carry trade currencies which is the usual scenario when the stock markets suffer losses as they did yesterday.

Markets look to be gearing up for a soft Inflation Report in November which could tee up a rate cut by the MPC. This scenario seems unlikely however markets are showing signs of pricing this in.

Online buyers are set to spend more than France and Germany combined in the run up to Xmas which shows all is not as bad as feared for the consumers although the availability of credit could put a cap on spending.

IPO’s in London fell by 75% in Q3 amid the ongoing credit drought.

The MPC’s Barker is set to speak at lunchtime (1245BST).

Euro:
The euro remained firm yesterday following comments from our friendly ECB hawk Axel Weber. He said that the ECB only interrupted the rate hike cycle following the credit squeeze and that it is now ready to act in order to maintain price stability.

Inflationary pressures, particularly from Germany, seem to be worrying members of the bank.

Italian Retail Sales are set to rally quite sharply when released at 0900BST.

General News:
• The exotics and emerging currencies took a bit of a hammering on he markets yesterday which seems to be the norm when stock markets wobble. The South African Rand fell sharply against the pound however looks to have recovered it’s losses this morning.

• Canadian Retail Sales are set to rise slightly when figures are released at 1330BST. A weak figure would provide a much-needed sell-off of the Loonie.

• Oil ticked off again yesterday after the dollar rally and what looks like a peaceful outcome in the current stand-off between Turkey and Kurds in Northern Iraq. Oil is $86.00.

Monday 22/10/2007 Interbank
GB POUNDS / EURO 1.4324

Times: bleak outlook for UK economy

Pounds:

The pound had a strong session on Friday following encouraging GDP numbers and some carry trade activity.
Despite the positive mood on Friday the press over the weekend and this morning sees a fairly bleak outlook for the UK going forward. Anatole Kaletsky in the Times today is particularly worried about the future citing a housing slowdown along with falling confidence in major institutions as the reason for the weakness. David Smith in the Sunday Times was less bearish seeing the MPC in limbo with the direction of rates with members undecided whether to cut or not.

This morning stocks are forecast to open down however the pound looks to have gained some momentum in early trade following a gap down on the open. No data today.

Euro:

The euro looks strong again following yet more hawkish statements from the ECB. Weber said he saw inflation above 3% in Germany and Garganas said inflation risks have ‘perhaps increased’.Interestingly there were no mentions about any currencies (yuan aside) from G7 who were expected to comment on the elevated level of the euro, particularly against the ailing dollar.

Nothing of note today however Trichet speaks this evening just before 2000BST.

General News:

• According to the Times today investment banks are to take the blame for the recent credit turmoil following weak practices and poor lending criteria and are set to take ‘corrective action’.

• It is worth noting that Friday was the 20th anniversary of the Black Monday crash which perhaps added some momentum to the sell-off in stocks.

• Canadian CPI came in higher than forecast on Friday pushing the Loonie to almost a 30-year high against the US dollar.

• Oil is off this morning following stock market declines and profit-taking after a bullish week. Oil this morning is trading $87.96.
 

Friday 19/10/2007 Interbank
GB POUNDS / EURO 1.4342


UK Retail Sales much stronger than expected

Pounds:

The pound kicked on yesterday following very strong Retail Sales data. The figures showed a marked rise in sales of toys and furniture. The toy side of things has been attributed to the recalls from China and the rise in furniture sales looks to have been on the back of the flood damage seen earlier on in the year. The deflator side of things dropped signalling that the spending was on heavily discounted goods.

From the look of the futures market it does appear that we may be gearing up for a November rate cut which would coincide with the Quarterly Inflation Report.

In the UK today we have GDP data at 0930BST which looks set to drop month-on-month but remain level on the year-on-year data. No UK speakers due.

Euro:

The euro posted new all time highs on the dollar yesterday with hawkish sentiment underpinning the single currency. As usual futures sold off following hawkish comments from the hawk of hawks Axel Weber.

German PPI numbers have softened the euro on the open and we may see a small sell off in the currency as we head into G7 next week.

Italian Industrial orders due later along with a couple of ECB speakers.

General News:

• Japanese stocks dipped on the back of US growth fears prompting equities to sell of as investors head for the get-out alternative of Japanese Government Bonds. The yen looks to be in a steady grind higher on the back of the rising bond prices.

• Canadian CPI looks set to rise today when figures are released at 1200BST. If the figures come in soft we could see a much needed sell-off of the Loonie.

• Oil almost tipped the scales at $90 yesterday on the back of the US dollar weakening and concerns over the supply through the winter. Oil is now. $89.42.
 

Thursday 18/10/2007 Interbank
GB POUNDS / EURO 1.4342

UK housing market ‘heading for a crash’

Pounds:

Yesterday the MPC voted 8-1 in favour of holding rates in October with only one member calling for a cut. No surprises with Mr Blanchflower being the lone dissenter. The minutes made interesting reading with a very mixed reaction and interpretation from markets.

Overall the markets have shown them to be fairly hawkish however some reports seem to have taken them as dovish. The MPC did debate a cut however underlying growth and inflation risks do remain so they will be waiting until at least after the November Inflation Report.

The Times this morning carries a story about an impending housing market crash following a report from the IMF. Despite this the pound has opened up on the front foot this morning ahead of expected strong Retails Sales and money supply data.

Euro:

The euro managed to gather some momentum yesterday with carry trade activity and yet more hawkish sentiment from the ECB. Axel Weber, a known hawk, yesterday said that he saw inflation risks still to the upside and saw headline inflation breaching the 2% level in 2008. He also said that the tension in the money market would continue to ease going forward.

FX levels for the euro are still a concern and will be discussed at length in the G7 meeting.

General News:

• Japanese stocks managed a rebound overnight with talk from LDP members about the next move in Japan being a cut in interest rates.

• New Zealand’s Finance Minister said that the recent drop against the dollar was wholly expected and that he sees the Kiwi continuing to weaken.

• Oil dipped yesterday and overnight with demand slowing, however the contracts remain underpinned by the Turkish government voting to back military incursions into Iraqi territory and President Bush’s somewhat inflammatory comments aimed at N.Korea. Oil is now $86.24.
 

Thursday 11/10/2007 Interbank
GB POUNDS / EURO 1.4365


UK house prices fall at fastest rate since 2005

Pounds:

A good start for the pound yesterday following MPC Governor King’s comments on Tuesday night. Short sterling (interest rate) futures dipped by 16 points yesterday at most, reflecting a large shift in thinking on rates for the coming months. Some of the gains from the morning session were given back following some fairly punchy losses against the euro.

RICS house price data this morning showed prices declined at their fastest rate since 2005. Forecasts were set for a decline however the actual numbers were much weaker than anticipated. New buyer inquiries are now at the lowest since March 2003.
Nothing else from the UK today.

Euro:

A good day for the euro yesterday after a fairly poor run in the past few days. The ECB’s hawkish drum can still be heard banging every morning this time coming from Bini-Smaghi and Gonzalez-Paramo. It looks like traders have found a safe haven to buy into in the euro. Rates are still not expected to rise given current credit conditions however the ECB are still making the right noises.

This morning we see the initial flash for the Q2 GDP for the Eurozone. No change expected.

General News:

• The Bank of Japan opted to keep rates on hold at 0.5% overnight with the board voting 8-1 in favour of holding rates. As usual uber-hawk Mizuno voted to raise rates.

• Aussie unemployment rates fell to a 33-year low overnight increasing pressure on the RBA to hike interest rates.

• Oil continued to trade higher through the day yesterday ahead of this afternoon’s inventory data in the US. Oil is trading $81.60.
 

Wednesday 10/10/2007 Interbank
GB POUNDS / EURO 1.4453

MPC’s King rules out early rate cuts

Chancellor Darling drops UK growth forecast

Pounds:

Last night MPC Governor Mervyn King indicated that rates would not be cut in the UK any time soon in a hawkish speech in Northern Ireland. King said that a rate cut to bolster the economy would not be forthcoming just to bail out struggling banks that have taken large risks with such a move likely to fuel the inflation fire the bank are tasked with controlling.
These comments have kept the pound well supported even after yesterday’s pre-budget report =in which Chancellor Darling reduced the UK’s growth forecast for 2008.

This morning cable is again trading near the 2.04 level and against the euro we’re in the mid-1.44’s. Yesterday the pound did slide however looks to have recovered some of the losses in early trade.

Euro:

The ECB retained their hawkish stance yesterday with Trichet more or less repeating comments from last Thursday’s press conference. Despite the hawkish overtones the bank are not expected to raise rates with the ongoing liquidity dry-up and it can only be a matter of time before the bank acknowledge growth may slow down in the coming months which would reflect the IMF figures yesterday.
Manufacturing figures for France and Italy are the figures today.

General News:

• Japanese bonds are trading down tracking the US treasuries this morning. The stock market should be set for a strong performance after the US Fed minutes.

• Australia’s employment indicator fell overnight. This is unlikely to have any effect on the dollar given the recent performance on the FX markets.

• Oil has found a small base at these levels ahead of the weekly US inventory data. The figures should show a large drawdown on stocks in the US which would indicate a supply squeeze.

This morning oil is at $80.29.

Tuesday 09/10/2007 Interbank
GB POUNDS / EURO 1.4488

UK Retail Sales jump to highest in 3 months

Pounds:

As expected the BRC Retail Sales came in strongly overnight climbing to it’s highest reading in 3 months. Is this a sign of consumer credit confidence sneaking back? Perhaps not with the cold weather this year in comparison to the like-for-like figures for the warmer month last year. The Telegraph reported this yesterday.

Markets have taken this figure in their stride and generally overlooked the strong reading. Yesterday however was a different story with manufacturing data showing a rise in inflationary pressures in line with rising oil and energy prices. A near term rate cut could be out of the questions.

On a quiet data day the focus will be on Chancellor Darling and his pre-budget report this afternoon. Darling is expected to focus on tax loopholes for the rich and change the inheritance tax structure.

Euro:

Europe looks to have fallen away slightly yesterday with the currency trading down against both the dollar and the pound amongst others. The IMF has dropped GDP forecasts for 2008 by 0.4% and expects the ECB to keep rates on hold to stabilise markets following the recent turbulence.

The sentiments were echoed by ECB member Liikanen who said credit issues were unlikely to be resolved before 2008 and that the implications of this were likely to be seen in European growth.

General News:

• The yen rallied overnight on the opening of Japanese stock markets following the Sports Day holiday yesterday. The BoJ said that they will act whenever is necessary to control pricing pressures in the economy.

• The Canadian dollar is still looking very strong trading well below parity with the US dollar and squeezing below 2.00 against the pound.

• Aussie business confidence dipped slightly data showed overnight.

• Oil fell again with the resurgence of the US dollar and dip in commodity prices. Oil is now $78.80.

Monday 08/10/2007 Interbank
GB POUNDS / EURO 1.4452

UK remains fairly well supported despite HSBC report

Pounds:

Most of the weekend press has been fairly sterling negative with most of the news focused on consumer spending. The Telegraph is already talking down data to be released tomorrow highlighting poor weather for the possible rise in high street sales for September.

The Sunday Times writes that the UK economy is gradually slowing and today’s Telegraph reports that disposable income in the UK is at a 10 year low on the back of rising borrowing costs, high taxes and travel expenses.
The news seems to have little effect on the pound this morning with the opening being fairly uneventful.

Cable looks to have found a 2.04 base meanwhile sterling looks like it may be heading for a break towards 1.45.

Industrial Production is the highlight of the day at 0930BST.

Euro:

The talk of the European town at the moment seems to be the level of the euro on the FX markets. ECB members seem to be seeing this as an anchor on inflation however from comments in the past week politicians seem to be slightly more concerned about the knock-on effect it will have on exports. ECB member Bini- Smaghi warned politicians not to comment too much and mislead markets.

Not much in the way of data today; German Factory Orders are due at 1100BST.

General News:

• The yen appears to be back on the carry-trade back foot at the moment with stability returning to markets and confidence beginning to flow.

• With gold and oil near highs the commodity currencies are again doing quite well with the Aussie and the Rand flying. New Zealand’s Rugby World Cup exit has had little effect with the kiwi trading strongly form the off.

• North Korea is reportedly beginning nuclear disablement this week.

• Oil is looking slightly soft with fading worries of a hurricane strike. Oil is now $80.76.
 

Friday 05/10/2007 Interbank
GB POUNDS / EURO 1.4415

ECB leave rates unchanged; may be at peak

Pounds:

The MPC kept rates on hold yesterday despite calls for an immediate cut from quite a few high profile players in the market. The MPC really does need to regain some credibility following their somewhat ‘patchy’ handling of the August credit squeeze and Northern Rock debacle. The decision to leave rates on hold gives the board an option to cut by 0.5% should the need arise further down the line.

LIBOR’s are still causing the near month short sterling contract to be slightly out of line with usual spreads.

HSBC is warning of a ‘hot money’ exodus from the UK as confidence falls in the country’s economic management.

The bank are looking for cable to dip from 2.04 to 1.76 in the coming 18 months.

No data or speakers from the UK today.

Euros:

The ECB left rates on hold at 4% yesterday, again as expected by markets, however there was a slight change in wording of Trichet’s press conference. He failed to use accommodative when talking about rates may imply that rates may have peaked, at least for the moment. The overall tone of the conference was however still on the hawkish side.

Very little from Europe today so until US data we should have a fairly quiet morning.

General News:

• Overnight the Bank of Japan said that the board were in no rush to raise rates despite calls from some quarters to hike the headline rates.

• Iran’s volatile President said overnight that Iran had ‘overcome difficulties en route to nuclear energy’ and added ‘no one can stop us’. • Federal prosecutors in the States have launched a criminal investigation over the collapse of two mortgage- related hedge funds run by Bear Stearns according to the WSJ.

• Oil ticked up on short covering and is now at $81.24.
 

Thursday 04/10/2007 Interbank
GB POUNDS / EURO 1.4397

BOE urged to cut rates: Times

Pounds:

The MPC announce their rate decision at high noon today and most are looking for the bank to keep rates on hold at 5.75%. Despite calls from various quarters, most vocally from the BRC, the bank should hold fire and look to hold the headline rate.

The Times carries a story urging the central bank to cut rates to ease the current liquidity problems in the interbank market.

The Royal Institute of Chartered Surveyors is predicting a 5% drop in commercial property next year which should see home prices dip too.

It is likely that we will see some positioning before the decision at midday so some odd moves and market orders might be seen in the run up to the announcement.

The market will be on the lookout for any comments accompanying the MPC decision.

Euro:

The euro looks to have lost it’s momentum in the run up to the ECB decision today. Markets have fully priced in a no-move situation today even with the hawkish line still being taken by the ECB.

As usual Trichet will answer questions from the press in his press conference this afternoon and as usual we will be listening out for the word ‘vigilance’ which Trichet generally uses to signal a coming rate hike.

Decision at 1245BST with the press conference at 1330BST.

General News:

• The Bank of Canada finally mentioned the strength of the dollar yesterday as the BOC said it would look at the causes and effects of the rise of the currency in the run up to the next rate announcement.

• Oil prices dropped yesterday after weekly data showed a surprise rise in US inventories. Along with the coming end to the hurricane season the upwards pressure on oil prices looks to have abated. This morning oil is trading $79.66.
 

MPC set to leave rates on hold tomorrow

Wednesday 03/10/2007 Interbank
GB POUNDS / EURO 1.4396

Pounds:

A slightly firmer day for the pound yesterday with most traders holding their breath and keeping their powder dry ahead of the MPC rate decision tomorrow. The market is expecting no change this month however the prediction may be slightly more tricky as any move down will more than likely coincide with an Inflation Report which comes in November and then in February.

Overnight a Nationwide survey showed that consumer confidence data rose to a 4-month high following the decline in headline unemployment. It is worth noting that the survey was conducted BEFORE the Northern Rock crisis. Speaking of NR it looks like private equity group JC Flowers has secured £15bn of funding with a view to a takeover.

No data to speak of today so markets should be quiet.

Euro:

The euro took a bit of a knock yesterday coming under pressure from the pound and the dollar. ECB member Noyer said that normal conditions were ‘far from being restored’ and that it is ‘difficult to restart the interbank market’ following the recent credit squeeze. This comment took some of the wind from the euros' sails following a fairly strong run on the back of the ECB’s orderly conduct during the liquidity drought.

Very little on the data front and no speakers due today.

General News:

• The RBA opted to leave rates on hold overnight in the face of rising Australian domestic sales and import growth. The figures will more than likely force the bank to raise rates at the next meeting which will cause some concern as the dollar is likely to rise in value.
• Chinese authorities are looking to cap foreign investment in domestic markets this time imposing a 20% limit on ownership of publicly traded brokerages.
• Oil prices ticked up ahead of an expected dip in inventories today along with news that Venezuelan President Chavez is opening up oilfields with a view to exporting to China only. Oil is $80.29.

MPC urged to cut rates by 0.5% in the Sunday Times

Monday 01/10/2007 Interbank
GB POUNDS / EURO 1.4369

Pound:

Finally the pound managed to post some gains on Friday. With no data driving the move it looked like some position-squaring along with some carry trade activity pushing the pound higher.

Over the weekend the Sunday Times urged a 0.5% rate cut by the MPC in response to the risks posed to UK confidence and growth however this morning is on the about-turn saying a rate cut is not the way forward for the MPC.

Also in the press is chat of falling house prices, specifically the dangers now emerging in the buy-tolet market. Hometrack house price data was flat month-on-month.

Today the extra duty on fuels hits the pumps taking diesel to the £1/litre mark and minimum wage rises also kick in. With these extra pressures on consumers we may see a mark made on the economy. M4 money supply data is the only figure of the day at 0930BST.

Euro:

The euro may be topping out a little here with talk of Germany cutting growth forecasts and a Swiss bank being forced to write off over US DOLLAR 3bn thanks to the credit and sub-prime waves. In addition pressure on exports from the recent strength of the currency may start to pinch in September's data.

Today we have European PMI’s set for release and they are all set to be slightly weak. In addition ECB President Trichet is due to speak this morning at some point.

General News:

• The yen has come under pressure from the carry traders again on the back of rising strength in the emerging market high-yielding currencies.

• The South African Rand, Aussie dollar and NZ dollar are all looking strong on the back of rising commodity prices thanks to the falling US dollar.

• Oman has committed itself to the US DOLLAR peg amid speculation of Gulf state unrest.

• Oil is near highs again mainly on the back of the weak dollar. This morning it is trading at $81.77.