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IMS FX DAILY MORNING REPORT - Wednesday 19th January 2011

Today's Interbank rates -

POUNDS TO US DOLLARS 1.5984
POUNDS TO EUROS 1.1877
POUNDS TO AUSTRALIAN DOLLARS 1.5906

EUROS TO US DOLLARS 1.3458
EUROS TO POUNDS 0.8419
EUROS TO AUSTRALIAN DOLLARS 1.3392

POUND HEADLINES:

• Hot on the heels of Decembers 3.7% inflation reading and the UK Chancellors expression of 'huge concern' over rising prices yesterday, today's UK labour market release assumes added importance.
• Fears that rising inflation concerns may force the Bank of England into a monetary policy response only make sense if wage inflation responds to rising inflation expectations. This would translate a short-term price spike to medium-term inflation pressure, hence today's news of the latest pay round (for November) will be closely monitored.
• Looking at the jobs numbers, today's report is expected to further highlight why the MPC is unlikely to respond to the recent rise in inflation by tightening monetary policy. A softer labour market tone reflects an underlying economic weakness, which the MPC will be mindful of in the face of the VAT rise and the prospect of a fiscal squeeze in the months ahead.

EURO HEADLINES:

• Higher yields and receding concerns over periphery debt are supportive of the Euro but bolder statements of intent from the EU will be required to get investors looking beyond the short-term bounce and re-engage in (bullish) longer term tactical plays.
• The Ecofin/Eurogroup meeting proved that we are still way off an accord and until Germany can be convinced it is expected gains will fizzle out once the broader risk rally fades.
• On Friday we have German IFO business climate index.

US DOLLAR HEADLINES:

• The dollar index has sunk to the lower end of the 7 week trading range and the next few trading sessions are likely to be pivotal whether the index stages a bounce back over 80.0 or instead momentum accelerates for a deeper retracement towards 77.85.
• US housing starts and building permits for December risk a softer than consensus outturn in the light of some weather disruption.

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