The MPC today are widely expected to leave rates on hold at 5.0% today, with the focus on the upcoming pay round early next year.

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Thursday 7/12/2006

• ECB to raise rates by 0.25% today
• Bank of England to keep rates on hold
• Dollar still teetering
• Brown’s PBR dents sterling strength
• FTSE to open down after weak US session
• Oil stocks in the US drop

US Dollar:

Another choppy session in the US market as traders struggle to form an opinion on the future direction
of interest rates. With the yield curve expectations whipping about on data releases, big swings in the
currency markets are inevitable. The Euro-dollar managed to break below 1.3300 for most of the day
yesterday and cable stayed below 1.9700 for the majority of the time.
Employment data tomorrow should give the markets more of an idea of the true value of the dollar.

Pound:

The MPC today are widely expected to leave rates on hold at 5.0% today, with the focus on the upcoming
pay round early next year. Decision due at 1200 GMT.
Sterling slipped yesterday as Gordon Brown announced fiscal tightening of around £2bn in his Pre-
Budget Report. This move puts pressure on the BoE not to raise rates further.

Euro:

Euro ticked back up again overnight ahead of today's ECB rate decision. The council are widely expected
to raise rates for the sixth time in this cycle to 3.5%. The announcement is at 1245 GMT with all
eyes on Jean-Claude Trichet’s press conference at 1330 GMT.
With markets struggling to form a consensus of the path of rates in 07, traders will be looking for any
change of vocabulary from the president for a clue. With internal wrangling in the ECB council and
comments from member countries it is thought that Trichet will be reluctant to put a foot in any camp
for the time being.

General News:

• The Japanese Yen’s volatility looks set to continue with uncertainty over the timing of the Bank’s
next rate hike. The global economy is unsure whether the move will occur in December or January.
• Wall Street closed under pressure yesterday as investors locked in profit after two days of gains
seeing the Dow Jones flirting with all time highs again. FTSE closed yesterday at 6,090.3.
• Oil stocks dropped in the US yesterday as the cold snap took it’s toll. However with warmer conditions
forecast in the commodity’s largest consumer oil prices may slip. Current price $62.42.

Inter-bank
Updated 07/12/2006

GB POUNDS / US DOLLAR 1.9685
GB POUND / EURO 1.4788
EUR/USD 1.3307
GBP/JPY 226.27
GBP/AUD 2.4931
GBP/NZD 2.8533
GBP/ZAR 13.8735
GBP/CHF 2.3489
GBP/CAD 2.2569
GBP/SGD 3.0287
GBP/THB 70.001
GBP/HKD 15.2858

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