The Bank of England meet this week to decide on the interest rate for January. Most market participants are of the opinion that the MPC will wait until February to hike rates to 5.25%.

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Monday 08/01/2007

• US dollar jumps on Non-Farm Payrolls
• German retail sales drop towards the end of 2006
• Bank of England set to keep rates on hold this week
• Worries of US slowdown feeding through to global markets
• Gold rebounds on buying after tumble on Friday
• Oil jumps on OPEC; away from lows

US Dollar:

The US dollar jumped by a cent on the pound on Friday following Non-Farm payroll data. Markets were
expecting 105k jobs to be added to the economy however the figure came out unexpectedly high at
167k. In addition November's data was also revised upwards. Cable dropped by a cent to 1.9300 immediately
following the release and failed to bounce.
Recent data seems to be conflicting with the general consensus that the US is in the midst of an economic
slowdown. Recent positive consumer data could be down to falling petrol prices.

Pound:

The Bank of England meet this week to decide on the interest rate for January. Most market participants
are of the opinion that the MPC will wait until February to hike rates to 5.25%. The shadow MPC
voted 5-4 in favour of raising rates in January. This should be taken with a pinch of salt as one member
voted for a 0.5% rise and another voted for a 0.25% cut.
With a shaky start to 2007 the pound will need interest rates to rise to gain some support.

Euro:

German retail sales fell on October and November despite a forecast 1% rise. In addition forecasts for
2007 data are slightly pessimistic following Germany’s VAT increase of 3%. The pessimism comes as it
is feared that German consumers may have bought big-ticket purchases just prior to the hike on New
Year’s Day.
Following Slovenia’s entrance into the single currency many Slovenes are complaining of soaring prices.

General News:

• A good session for the Japanese Yen as momentum gathers over the prospect of a January rate
rise in Japan. Asian volumes have been light as Japan celebrate another public holiday.
• Israel have denied reports of plans to use nuclear weapons on Iranian uranium enrichment sites.
The Sunday Telegraph reported that Israel had formulated plans to attack Iranian targets.
• Oil bounced from lows in Asian trade as OPEC announced further production cuts. With continuing
mild weather in the US oil may struggle to break $60. Oil trades $56.61.
• Gold bounced as jewellers and investors capitalised on Friday’s heavy fund-selling.

Interbank
Updated 8th January
GB POUNDS / US DOLLAR 1.9299
GB POUND / EURO 1.4856
EUR/USD 1.3007
GBP/JPY 228.73
GBP/AUD 2.4788
GBP/NZD 2.8160
GBP/ZAR 14.0574
GBP/CHF 2.3869
GBP/CAD 2.2663
GBP/SGD 2.9716
GBP/THB 68.95
GBP/HKD 15.0625

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