The service sector PMI jumped to a 10-year high yesterday along with mortgage approvals reaching a 3-year high increased the probability of an interest rate hike in the UK.

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Friday 05/01/2007

• Buoyant UK economy fuels interest rate hike chatter
• Dollar extends rally for second day
• Halifax house prices lower than expected
• Global markets eye Non-Farm Payrolls
• Reports of North Korea preparing a nuclear test
• Oil drops yet again on stockpile data

US Dollar:

A second strong day for the dollar yesterday as traders betting on a further fall in the dollar are
squeezed out of their short positions. A three cent fall in cable in the last three days looks to have
forced traders to cut their positions ahead of the Non-Farm Payrolls today.
Employment data is expected to show an extra 105,000 jobs added to the payrolls. The data is released
at 1330 GMT so we should be seeing some price action in the run up to lunchtime.

Pound:

The service sector PMI jumped to a 10-year high yesterday along with mortgage approvals reaching a
3-year high increased the probability of an interest rate hike in the UK. Some investment houses are
predicting a move to 5.25% as soon as next month.
On the flip side, known dove David Blanchflower of the MPC, warned that the labour market still had
slack due to immigration from Eastern Europe. Also this morning Halifax house prices came in lower
than expected.

Euro:

Very little to report from the eurozone. This morning we have PMI data from the individual members
and news that Jacques Chirac is planning sharp cuts in corporate tax in the run up to French elections.
Euro was sold heavily on the back of the dollar strength yesterday and overnight.

General News:

• The Japanese yen had a good overnight session as it regained ground on the dollar, euro and
pound amid increasing speculation that the BoJ will raise interest rates in the very near future .
• News network ABC reports that North Korea are planning a second nuclear test, the second since
October, in the coming few weeks. The network cites US defence officials as the source.
• Oil prices fell sharply on Thursday as US inventories data showed a larger than expected rise in
gasoline stocks. In addition the continuing mild weather has forced the headline contract down a
massive 9% in the last two days. Current price is $55.64.

Interbank
Updated 5th January
GB POUNDS / US DOLLAR 1.9410
GB POUND / EURO 1.4823
EUR/USD 1.3089
GBP/JPY 229.36
GBP/AUD 2.4767
GBP/NZD 2.7955
GBP/ZAR 13.8259
GBP/CHF 2.3854
GBP/CAD 2.2849
GBP/SGD 2.9797
GBP/THB 69.241
GBP/HKD 15.1125

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