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IMS FX DAILY MORNING REPORT - Thursday 3rd February 2011

Today's Interbank rates -

POUNDS TO US DOLLARS 1.6249
POUNDS TO EUROS 1.1791
POUNDS TO AUSTRALIAN DOLLARS 1.6026

EUROS TO US DOLLARS 1.3782
EUROS TO POUNDS 0.8482
EUROS TO AUSTRALIAN DOLLARS 1.3594

POUND HEADLINES:

• After falling sharply in December due to weather disruptions, UK Manufacturing and Construction PMI surveys rebounded in January. UK Services PMI has also come in this morning a lot better than expected at 54.5 versus an expected 51.3.
• Following yesterdays impressive Construction data the pound rose to its highest level against the dollar in three months. The index rose to 53.7 in January, beating forecasts of 49.9. A reading above 50 indicates growth.
• UK official reserves come in at -384 versus 976 previous.

EURO HEADLINES:

• The key highlight in the euroarea today is the ECB's interest rate announcement and in particular the subsequent press conference. President Trichet is expected to repeat the theme of rising inflationary risks, although stop well short of signalling any imminent change, particularly before the key quarterly meeting in March.
• Eurozone consumer prices accelerated to a two year high in January and pipeline price pressures are already evident. With oil prices having risen further in January, there is significant risk that headline consumer prices will accelerate further.
• Eurozone Retail Sales come in at -0.6% month-on-month and -0.9% year-on-year versus 0.5% month-on-month and 0.2% year-on-year expected.

US DOLLAR HEADLINES:

• While markets remain preoccupied with Friday's non-farm payrolls on Friday, the US ISM non-manufacturing index today is expected to reconfirm the continued recovery in the services sector. Although we expect the index to be broadly unchanged in January at 57.2, compared to 57.1 in previous month, this still signals that the sector is expanding.
• A fairly static session yesterday and general apathy to commit to a strong directional view overnight does not come as a surprise as investors lighten up ahead of the payrolls release tomorrow. Having said this, the dollarindex has found a more stable footing on the back of the manufacturing ISM and so a stronger non-manufacturing ISM this afternoon should translate into higher UST yields.
• With the political unrest in Egypt taking another turn, we think risk assets are not going anywhere until tomorrow afternoon and could be challenged by a hawkish ECB.

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