Investors are still looking for the Bank of England to raise rates to 5.0% on Thursday.

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Tuesday 7/11/2006

• Dollar holds firm on political stand off
• China forex reserves hit $1,000bn
• Caution as the market waits for UK rate rise
• Japan signals pre-emptive rate rise
• ECB member warns of ‘alarming inflation’
• Oil gains ground on OPEC production cut warnings

US Dollar:

The dollar initially hit one month highs late Monday on fears of a political stand-off in the US. With polls
showing the republicans trailing ahead of today’s mid-term elections, a Democratic win could boost the
dollar. This would effectively make Bush a dead duck and ‘limit his ability to crank up global geopolitical
risk’, commented an ING economist.
Meanwhile gains were pared as Bank of Japan governor Fukui said that the central bank would act pre-emptively
to quell any incipient spike in inflation. The market took the comments on board and consequently
bought the yen against the dollar.

Euro:

European Central Bank (ECB) member Axel Weber commented that the European inflation outlook was
alarming and called for vigilance, increasing interest rate rise speculation.
Meanwhile traders are still expecting a rate hike in December following on from ECB President Trichet’s
hawkish comments on Thursday.

Pound:

Investors are still looking for the Bank of England to raise rates to 5.0% on Thursday. Today we see
the release of the British Retail Consortium high street sale figures for October. A dip is expected after
the weak distributive trades survey.
Meanwhile the FTSE is looking for a good start after Marks & Spencer post a half year profit rise of 32%

General News:

• China’s foreign exchange reserves top $1,000bn for the first time, growing at a rate of $30m an
hour thanks to the differential between imports and exports. This puts the spotlight on the renminbi
with many foreign investors seeing it as deeply undervalued.
• Oil prices ticked up as investors digested the news that OPEC are warning of further production
cuts next month. Oil had traded down as stockpiles had grown. This morning oil prices steadied
at $60.02 per barrel.
• In Australia investors are waiting for the Reserve Bank of Australia to lift the cash rate by 25
basis points to 6.25% tomorrow.

GB POUNDS/ USD 1.9037
GB POUNDS / EURO 1.4923
EUR/USD 1.2756
GBP/JPY 224.25
GBP/AUD 2.4615
GBP/NZD 2.8367
GBP/ZAR 13.9135
GBP/CHF 2.3834
GBP/CAD 2.1446
GBP/SGD 2.9749
GBP/THB 69.785
GBP/HKD 14.8214

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