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IMS FX DAILY MORNING REPORT - Monday 31st January 2011

Today's Interbank rates -

POUNDS TO US DOLLARS 1.5864
POUNDS TO EUROS 1.1640
POUNDS TO AUSTRALIAN DOLLARS 1.5970

EUROS TO US DOLLARS 1.3629
EUROS TO POUNDS 0.8591
EUROS TO AUSTRALIAN DOLLARS 1.3720

POUND HEADLINES:

• Despite the World Economic Forum, the State of the Union address and the FOMC announcement, It was the UK that provided most shockwaves to markets last week with the startling collapse in Q4 economic activity, followed by news that the MPC nest contained another hawk.
• A dangerous week lies ahead for GBP with the PMIs obviously taking centre stage and taking on added importance following the collapse in consumer confidence to levels last seen around Q1-09.
• The confidence of UK consumers in the economy and their finances suffered its biggest monthly drop in 16 years. Rising VAT was a key factor behind the "astonishing" confidence fall, the GfK NOP Social Research report said. More government austerity measures and the surprise contraction in the economy meant talk of a double dip recession was "unavoidable", the study said.

EURO HEADLINES:

• The eurozone posts preliminary estimates of January's CPI. Notwithstanding the surprisingly soft reading in last week's German numbers, we see the risk of rising food, energy and other commodity prices pushing the currency area's rate higher, with analysts expected forecast for a rise to 2.5% from 2.2%.
• preliminary numbers for Spain precede the release of the eurozone aggregate and will contain further clues. This will be particularly relevant ahead of the ECB rate announcement and president Trichet's pressconference.
• German Retail Sales for December month-on-month comes in at -0.3% missing expectations of 2.0%

US DOLLAR HEADLINES:

• This week the focus shifts back to the international scene with US non-farm payrolls claiming the usual top spot on the economic calendar, closely followed by the ISM surveys and comments from Fed Chairman Bernanke.
• In the US, It is expected that we will see ongoing evidence of a strengthening recovery. Analysts forecast a continued firm background for household incomes, which should prove supportive of spending in January.
• US economic growth accelerated in the last three months of 2010 to an annualised rate of 3.2%. A rise in consumer spending contributed to the growth, as did falling imports.

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Kris Charalambides
FX Broker
kris@imsfx.co.uk
www.imsfx.co.uk
Tel: 0207 183 2790