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IMS FX DAILY MORNING REPORT - Tuesday 1st February 2011

Today's Interbank rates -

POUNDS TO US DOLLARS 1.6117
POUNDS TO EUROS 1.1721
POUNDS TO AUSTRALIAN DOLLARS 1.6024

EUROS TO US DOLLARS 1.3660
EUROS TO POUNDS 0.8527
EUROS TO AUSTRALIAN DOLLARS 1.3666

POUND HEADLINES:

• Today's UK manufacturing PMI will provide an early taster of how conditions in the sector are faring in Q1. Manufacturing has been a rare source of strength in recent months, with the headline PMI rising to a near 17-year high of 58.3 in December.
• Attention will also be on the UK M4 money supply figures. Although there has been some improvement in the underlying measure, the headline decline in M4 still makes a strong argument for the MPC not being panicked into an early interest rate increase.
• Sterling was exceptionally strong yesterday, primarily it seems because of end month demand, but it may may also have been boosted by Weale's justification of his hawkish January MPC stance in yesterday's press.

EURO HEADLINES:

• The Euro has held up well under pressure from Mid-east risk concerns, and widening yield spreads over the US combined with a decline in EU periphery pressure, underlined by the absence of any ECB buying of bonds last week for the first time in 3 months, suggests further upside scope.
• Trichet is speaking today but is unlikely to reveal anything ahead of the ECB meeting on Thursday, though this if anything probably carries a risk that current hawkish market expectations are pared
  back.
• Eurozone PMI manufacturing for January comes in at 57.3 beating expectations of 56.9

US DOLLAR HEADLINES:

• Today we have the release of the January manufacturing ISM in the US. After yesterdays strong jump in the Chicago PMI the odds of a strong improvement in the ISM have shortened.
• There are risks that the "march of a million" planned for today in Alexandra reignites market jitters about the Egyptian situation, and this would tend to benefit the USD, especially since yesterday's activity saw the USD come under pressure for month end hedging reasons.
• Nevertheless, the risks are two way, since rate spreads have moved against the USD in the last two days so the USD is still vulnerable if risk appetite returns in earnest. Otherwise, there will be some focus on ISM, particularly the employment component ahead of the employment report on Friday since the last reading was disappointingly weak.

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