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IMS FX MORNING REPORT for Thursday 9th December 2010

Today's Interbank rates -

POUNDS TO US DOLLARS 1.5767
POUNDS TO EUROS 1.1940
POUNDS TO AUSTRALIAN DOLLARS 1.6038

EUROS TO US DOLLARS 1.3204
EUROS TO POUNDS 0.8374
EUROS TO AUSTRALIAN DOLLARS 1.3432

POUND HEADLINES:

• During a very quiet day in terms of economic releases elsewhere, the focus today is primarily on the UK where the Bank of England announces the policy decision of its latest monthly meeting and the ONS publishes the trade figures for the month of October.
• The MPC is fully expected to leave both the level of the Bank Rate and the size of the QE program unchanged this month. However, as the November Inflation Report made clear, the upside risks to inflation have risen over the past year, with higher food and energy prices, and the upcoming rise in VAT, likely to keep inflation above 3% through early 2011.
• UK house prices have continued to slip, falling by 0.1% in November from the previous month, the Halifax have said. Sluggish demand and a higher number of properties for sale had pushed down prices, it said.

EURO HEADLINES:

• A quiet session for the EUR yesterday in London in spite of the sharp rises in yields, in part because this has taken the focus off EU periphery issues for the moment. There is little on the calendar to excite the market today, so the focus is likely to remain on equities and their reaction to higher yields. Reasonable resilience so far suggests support for the EUR below 1.32 will remain.
• German CPI for November comes in as expected at 0.1%. The year-on-year figure also met forecasts coming in at 1.5%
• German Industrial Production for October month-on-month came back yesterday at 2.9% beating expectations of 1.0%. The year-on-year figure is 11.7% beating expectations of 10.0%.

US DOLLAR HEADLINES:

• Rises in US yields continued yesterday into the US auction, which is part of the explanation for the sharp rise in yields this week, though the Obama tax cuts and market positioning after the employment report have also had an influence. In the end, the Fed’s QE seems likely to prevent the rise in yields extending far from here, and the Fed will be keen to try and prevent such a move. But in any case, the rise in yields elsewhere means the impact on the USD is unlikely to be dramatic.
• In early trade yesterday there was solid demand for the dollar as the market focused in on highertreasury yields therefore having lost ground in early trade, sterling rallied up to a fresh two-week high
  against the US dollar yesterday as data impressed.

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Kris Charalambides

FX Broker

kris@imsfx.co.uk

www.imsfx.co.uk

Tel: 0207 183 2790