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IMS FX DAILY MORNING REPORT - Monday 21st February 2011

Today's Interbank rates -

POUNDS TO US DOLLARS 1.6216
POUNDS TO EUROS 1.1850
POUNDS TO AUSTRALIAN DOLLARS 1.6044

EUROS TO US DOLLARS 1.3684
EUROS TO POUNDS 0.8438
EUROS TO AUSTRALIAN DOLLARS 1.3538

POUND HEADLINES:

• It's all about the MPC minutes on Wednesday and with talk swirling of a hawkish shift in MPC voting and a number of bodies calling for an imminent hike in rates, the stakes for GBP continue to remain unusually high. The not so great underlying message from January retail sales on Friday is unlikely to have dampened conviction of the Bank's rate hawks. Focus now turns the minutes on Wednesday and the Feb PMIs next week for indications whether the promising start to 2011 stayed intact in February
• Sterling markets have been whipsawed over the past week by rising speculation of a near-term rise in UK interest rates. Although there was some relief that annual CPI inflation rose to 'just' 4% in January, that relief was quickly dispelled by comments for the BoE Governor in his open letter to the Chancellor.
• Traders seized on those comments as an implicit acknowledgement that the MPC was getting ready to raise interest rates. Although the Governor appeared to go out of his way to play down this interpretation when he presented last week's Inflation Report, the profile of the Bank's revised inflation forecast suggests the risks of a near-term rate rise have clearly shifted.
• Against this backdrop, markets will watch domestic developments closely this week, including second estimates of Q4 GDP. But given the intensity of the UK rate debate, the minutes to February's MPC meeting will be key focus.

EURO HEADLINES:

• The key focus today is the release of the February eurozone PMI and German IFO business surveys. Both provide an indication of economic trends in the current quarter and are probably the most closely watched of all business surveys by economists and policymakers alike. Scheduled ECB speakers today are Draghi, Stark and Weber.
• French PMI services for February comes in at 60.8 beating expectations of 58.0 and the PMI manufacturing comes in as expected at 55.3.
• German PMI services for February comes in at 59.5 missing expectations of 60.2 whilst manufacturing PMI comes in at 62.6 smashing expectations of 60.3.
• Eurozone PMI services for February has come in at 57.2 beating expectations of 55.9 & PMI has also beat expectations helping the Euro gain some momentum this morning.
• The German IFO has come in as expected showing an improvement for February. Significantly, notwithstanding prospects of German government spending cuts and a modest slowdown in Chinese growth, the expectations component is holding up very well, thanks to a pick-up in domestic demand led by a relatively resilient labour market.

US DOLLAR HEADLINES:

• The short-term continues to look ominous for the dollar index and even as we move into a 5th straight day of selling and violence escalates in North Africa/Middle East, technically the picture does not yet look oversold. US markets are close today so liquidity could be poor, a reason perhaps for investors to test support in the 77.643 area.
• The pound rose to a two-week high against the dollar on Friday following strong UK retail sales data. The pound/dollar has moved away from its high but is continuing to hold above $1.62.
• Tomorrow for the US we have S&P Case-Schiller House Price, Consumer Confidence and Richmond Fed Manufacturing Index.

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