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FX DAILY MORNING REPORT - Monday 24th January 2011

Today's Interbank rates -

POUNDS TO US DOLLARS 1.5955
POUNDS TO EUROS 1.1759
POUNDS TO AUSTRALIAN DOLLARS 1.6129

EUROS TO US DOLLARS 1.3568
EUROS TO POUNDS 0.8504
EUROS TO AUSTRALIAN DOLLARS 1.3716

POUND HEADLINES:

• Sterling will be a big focus this week with Q4 GDP and Bank of England governor Mervyn King speaking on Tuesday. We also have MPC minutes on Wednesday.
• Today Andrew Sentance speaks, and will no doubt be as hawkish as Posen was dovish on Friday, but we continue to expect a less hawkish tone to emerge in UK rates markets over the week, and this should mean sterling is biased lower.
• The pound dropped a further half a cent on Friday against the stronger euro following on from strong German data. A German business confidence index reported a higher-than-expected figures adding support to the already buoyant single currency.

EURO HEADLINES:

• The Euro is enjoying a period of relative calm as the EU periphery problems are put on the back burner and the market focuses on the strength of the German economy and the possibility of higher rates in the Eurozone later in the year.
• There is potential for the EU periphery issues to rear their ugly head again at any point, but there are no obvious triggers today, and with only Spanish T-bills and Italian index-linked to be auctioned this week (other than German debt) the more positive tone seems likely to continue (for now).
• Today's eurozone preliminary PMI survey results for January will go a long way in reconfirming the current economic strength of core countries such as Germany and France. There are a number of reasons to
  be optimistic, in particular the stronger-than-expected German IFO last Friday, which was driven higher by increased future economic optimism. In addition, the French business confidence and own production indicators also exceeded consensus estimates.

US DOLLAR HEADLINES:

• As equities bounced from their lows on Friday the USD resumed its downtrend, and the USD index has held below the 78.80 level where it bottomed twice in December.
• The euro situation is far from riskless, but the market now appears to be focusing on prospects for yield rises rather than credit risk, and the combination of low US inflation and high unemployment means the USD will remain under pressure while this is the focus, at least as long as risk is "on".
• The pound regained lost ground against the dollar on Friday but pushing beyond $1.60 today could be a big ask with investors regarding the level as a good selling opportunity. This week, focus will be on the Fed's meeting starting tomorrow with the policy announcement on Thursday.

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