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IMS FX DAILY MORNING REPORT - 7th January 2011

Today's Interbank rates -

POUNDS TO US DOLLARS 1.5459
POUNDS TO EUROS 1.1902
POUNDS TO AUSTRALIAN DOLLARS 1.5577
EUROS TO US DOLLARS 1.2988
EUROS TO POUNDS 0.8401
EUROS TO AUSTRALIAN DOLLARS 1.3088

POUND HEADLINES:

• UK services PMI was much weaker than expected yesterday,
  and although some of this looks to have been weather related, it also looks
  partially a genuine reflection of deteriorating service sector prospects.
• Sterling was largely unaffected as the market focused on
  Euro weakness, but the UK numbers do stand out as weak against a general set
  of strong numbers elsewhere in the last few weeks. Sterling is vulnerable,
  but for the moment EUR/GBP is targeting a test of the 0.8330 December low,
  and downside risks for sterling seem greater in cable.
• Demand for home loans is expected to fall in the coming
  months as the mortgage market continues to stagnate. Lenders believe that
  demand for mortgages for house purchases will drop in the first three months
  of 2011 as people delay decisions to move. These views are reported in the
  Bank of England's Credit Conditions Survey.

EURO HEADLINES:

• This morning it is expected that eurozone Q3 GDP growth
  will remain unchanged at 0.4% in the final estimate. The eurozone
  unemployment rate is also predicted to remain steady at 10.1% in November -
  a 12 year high.
• Data yesterday showed German manufacturing orders surged
  5.2% in November, putting an upside risk to our industrial production
  forecast.
• Euro periphery debt weakened further yesterday helped by
  an announcement of a Portuguese bond auction next week. It does seem likely
  that the Portuguese and Spanish bond auctions will be easily funded next
  week, but while there is potential for a Friday rally simply because
  the speculative market must now be quite short Euro, it is hard to see how
  the downtrend is turned without some more news on bailout arrangements
  across the Eurozone.

US DOLLAR HEADLINES:

• The US recovery has gained some traction according to
  recent data, with this weeks ISM surveys both showing a pick up in activity
  in December, underpinned by resurgent production and a sharp rise in new
  orders.
• Ahead of today's December Employment Report, most
  attention this week was taken by an astonishingly strong ADP report, showing
  a record (since 2001) 297,000 private sector jobs added in December.
• USD strength extended across the board yesterday as the
  combination of expectations of a strong employment report and more widening
  spreads in the EU periphery intensified the pressure on EUR/USD.

If you need to buy, sell or make an international payment today then please
call me for a free quote.

Kris Charalambides

FX Broker

kris@imsfx.co.uk

www.imsfx.co.uk

Tel: 0207 183 2790