The manufacturing sector suffered a disappointing December according to the CIPS PMI report released yesterday.

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Wednesday 03/01/2007

• Sterling drops vs euro on manufacturing data
• Eurozone boom showing signs of flagging
• US awaits Fed’s minutes
• Gold soars as ECB member bank turns buyer
• Commodity currencies strengthen on gold spike
• Oil still sub$61 on US mild weather

US Dollar:

US traders return to work today following the closure of markets yesterday for the funeral of Gerald
Ford. The dollar slipped again yesterday amid thin trade with cable trading to a high of 1.9752 and
euro-dollar pushing the 1.33 resistance level.
Later today the Fed release the minutes of the December meeting with no surprises expected. Also today
the US releases it’s ISM figure.

Pound:

The manufacturing sector suffered a disappointing December according to the CIPS PMI report released
yesterday. The PMI headline figure dropped from 52.5 to 51.9 showing that the sector is still expanding.
A drop below 50 would indicate sector contraction. The drop is being accredited to the strength of
the pound dampening demand for exports.
Today we have the construction PMI figure which may give the UK market further direction.

Euro:

Another good day for the euro yesterday as ECB members continued with their hawkish tones. Despite
a drop to 9-month lows in the PMI the euro gained ground against the pound and the dollar. With the
yield advantage of the US and UK closing the strength of the euro looks set to stay.
Economists are warning of the risks to growth in Germany posed by the VAT hike from 16% to 19% on
New Year’s Day. In addition exports may suffer on the back of recent euro strength.

General News:

• An unknown ECB member bank turned buyer of gold yesterday causing the commodity to jump
$4.10 to $640/oz. The ECB are historical sellers of gold, hence the reaction.
• The commodity currencies, in particular the South African Rand, benefited from the gold spike
yesterday trading higher on the pound.
• Oil is still struggling to rally amid mild weather in the US. The headline contract is currently trading
$60.66.

Interbank
Updated 3rd January
GB POUNDS / US DOLLAR 1.9711
GB POUND / EURO 1.4844
EUR/USD 1.3278
GBP/JPY 234.36
GBP/AUD 2.4731
GBP/NZD 2.7842
GBP/ZAR 13.5674
GBP/CHF 2.3961
GBP/CAD 2.2956
GBP/SGD 3.0171
GBP/THB 70.000
GBP/HKD 15.3425

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