Market Report

This week has turned out to be a very positive week for GBP on the foreign exchange markets with high consumer price data, hawkish BoE minutes and a stronger than expected Q3 preliminary GDP figure. The market has now fully priced in a rate hike in November and some players have even begun to price in further hikes in this cycle. The UK economy has expanded for 57 consecutive quarters, avoiding the recessions that have hit the US, Germany, France and Italy within that period.

The USD has declined this week on the back of GBP, JPY, AUD and EUR strength on one hand and concern that the US interest rate advantage will be reduced over coming weeks as the US remains unchanged and the UK, Euro-zone, Australia and Japan raise their benchmark rates.

In South Africa the Rand has risen on the currency markets for the last three days as the price of gold, the country's largest single export, continued to rise. South Africa is the world's largest producer of precious metals and as such the currency often moves in line with moves in the gold and platinum markets.

Have a great weekend

NS

Sterling has started our long anticipated reversal in fortunes after U.K retail sales unexpectedly fell for the first time in eight months. Sales which account for one third of consumer spending fell by 0.4% from August.

The jobless claims from the United States are to be released today which is expected to show that the U.S job market is looking healthy once again. The general belief now from the States is that they will ride out the housing slump.

South Africa's rand advanced for a second day on speculation foreign direct investment flows into the economy will boost demand for the currency.

VC

The pound rose to its highest against the euro this month after the Bank of England said two policy makers voted to raise interest rates at this month's meeting. Sterling has risen for the sixth day in a row as speculation that a rise in interest rates next month seems inevitable. House prices in the U.K rose at the fastest rate in almost two years helping to push inflation above the Bank of England's target for the fifth consecutive month.

Consumer prices in the U.S. probably fell for the first time this year in September, reflecting a decline in fuel costs that may help subdue inflation in coming months, economists said before a government report today.

GBP will continue to be supported in Currency markets into the November policy meeting; however we still advocate the fact that there is a considerable positional bias and sentiment is overly bullish towards GBP to support a longer term appreciation against the USD or the EUR.

VC

Today sees the release of the Producer Price Index and the Industrial Production figures from the United States both are expected to be show a slight reversal in fortunes after gains in August. We believe this may have a short term reaction, but will be short lived and the Dollar will start to strengthen against both Sterling and the Euro once again.

Sterling may decline against the Euro before a government report that will probably show inflation in Europe's second-largest economy slowed last month. With growth in the U.K seemingly slowing down and any interest rate hike next month looking to have already been written in by the markets we may start to see the expected weakening of the Pound sooner rather than later.

Europe sees the release of the ZEW figures from Germany today with the expectation that we will see another decline in October.

The forint may gain for a fourth week, its longest winning stretch since August, on speculation signs of faster wage inflation will spur Hungary's central bank to lift interest rates for the fifth time this year.

VC

In the UK house price inflation accelerated to its fastest pace in almost two years according to Rightmove, although the bullish impetus for UK rates that this provides should be tempered by the fact that the increase is based upon much thinner volumes as it seems fewer home owners can afford to trade up so the supply of houses is dropping. Wednesdays BoE minutes will give us a further indication of the MPC's views and expectations for the path of UK rates and will give us the last structured article on the groups thoughts before the highly anticipated November meeting.

In the US, last week saw traders' removing the previous weeks bets that the next move in US rates is down on a renewed inflation concern from the Fed. There are more Fed speakers this week beginning with San Francisco Fed President Janet Yellen, all rhetoric will be closely scrutinised for inflation concerns and any signs as such will be seen as positive for the USD. Outside of the spoken word both PPI and CPI from the US on Tuesday and Wednesday will be key to US rate sentiment going forward.

In the Euro Zone rising productivity is helping allay inflation concerns and may allow Trichet, President of the European Central Bank, to limit the current round of interest rate increases. This could well be a negative for the EUR in the short term.

Therefore over the course of the week we are likely to see the USD continue to strengthen against both the EUR and GBP, with perhaps the JPY showing the most resilience against the USD in the majors as interest rate rises come back to the fore, following Bank of Japan comments towards the end of last week.

VC

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