Sterling lost ground yesterday despite an upward revision to the 3Q GDP data.

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Friday 22/12/2006

• Sterling weakens as trade gap widens
• Dollar struggles to make headway in cautious trade
• US data due; Michigan sentiment and durable goods
• Canadian dollar weakens on retails sales/growth
• Rumours grow over Xmas London terrorist attack
• Oil treads water ahead of holiday season

US Dollar:

The dollar failed to make any significant headway despite the sentiment change that the Fed won’t be
looking to cut interest rates in the near future. The Fed’s Lacker said that the expected moderation in
inflation has not yet come to fruition and ‘inflation remains a predominant risk’.
With more minor data out this afternoon traders will be cautious about heading into the holiday with
open positions. Yesterday the Philly Fed factory survey showed a sharp drop in activity however durable
goods this afternoon are expected to show a moderate increase.

Pound:

Sterling lost ground yesterday despite an upward revision to the 3Q GDP data. Investors focused on
the larger than expected rise in the UK’s current account deficit.
There is no UK data due out today so the market should be dominated by range trading and traders
positioning themselves for the Christmas period.

Euro:

French and German data is set to dominate the market this morning with the German states releasing
their CPI figures and the French releasing GDP and PPI figures. Both countries are expecting the data
to moderate which may steady the euro ship.
However with the ECB expected to continue with their tightening policy narrowing the global yield differentials,
the euro seems to be the currency everyone wants to hold on to.

General News:

• Canadian retails sales showed a sharp drop in October bringing the country one step closer to a
cut in interest rates.
• Japan released the minutes of the rate setting meeting and with members striking a somewhat
dovish tone, the timing of the next interest rate move has been thrown into doubt.
• According to the ABC News website ‘it will be a miracle if there is not a terror attack over the
holidays in London’. This comes on top of rumours circulating that an attack on UK soil is imminent.
• Oil traded down slightly as traders took the profit out of the market from the recent rally. Oil is
currently trading $62.73.

Interbank
Updated 22th December
GB POUNDS / US DOLLAR 1.9639
GB POUND / EURO 1.4874
EUR/USD 1.3204
GBP/JPY 232.32
GBP/AUD 2.4969
GBP/NZD 2.8129
GBP/ZAR 13.7282
GBP/CHF 2.3833
GBP/CAD 2.2654
GBP/SGD 3.0229
GBP/THB 71.1306
GBP/HKD 15.2733

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