euro loses ground against the dollar and pound

IMS FX DAILY MORNING REPORT - 5th January 2011

Today's Interbank rates -

POUNDS TO US DOLLARS 1.5573
POUNDS TO EUROS 1.1737
POUNDS TO AUSTRALIAN DOLLARS 1.5541

EUROS TO US DOLLARS 1.3268
EUROS TO POUNDS 0.8519
EUROS TO AUSTRALIAN DOLLARS 1.3240

POUND HEADLINES:

• UK equity markets roared back into life after the New Year break with the FTSE-100 closing up over 100 points the first trading session of the year. Part of the optimism may have been related to a firm of economic data out during the day with the UK manufacturing PMI survey hitting a 16-year high and mortgage approvals rising slightly against expectations of a small decline.
• Today Construction PMI is expected to indicate that activity in the sector continues to moderate with an outside risk of the index potentially dropping into contraction territory. It is expected that over the medium term, with residential, commercial and public sector projects continuing to face headwinds, the construction sector could lag the rest of the economy in 2011.
• Tomorrows data sees GBP Purchasing Manager Index Services for December

EURO HEADLINES:

• In the eurozone, the markets will focus on the latest set of services PMI readings which are expected to remain unchanged on the previous month both in Germany and the region as a whole. However, with the
  manufacturing index showing an unexpected improvement earlier in the week, there will be optimism that the recovery is gaining some much needed momentum.
• Tomorrows eurozone data sees the publications of consumer confidence, retail sales and German Factory orders.
• Eurozone PMI services for December comes in this morning at 54.2 beating expectations of 53.7

US DOLLAR HEADLINES:

• In the US, after the publication of the latest Fed minutes attention turns to the ISM non-manufacturing index, ahead of Fridays non-farm payrolls, the latest ADP employment numbers.
• US data have generally been strong over the past month and markets are looking for the latest releases to confirm that this momentum has been sustained.
• The Federal Reserve will continue with its $600bn stimulus programme as it is not convinced by recent signs of a strengthening recovery in the US economy. The Fed did acknowledge the improving outlook, but said the programme - dubbed QE2 - would continue.

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Kris Charalambides

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