Yesterday was a quiet day with no major UK data, the main focus seemed to be on the European Central Bank signalling intent to raise Euro area borrowing costs next month. The ECB left interest rates on hold at 3.25 percent and all-but confirmed expectations for a December hike. Against the dollar, sterling was steady after weaker-than-expected U.S. manufacturing growth data sparked fears of an economic downturn on Wednesday.

This morning we are looking ahead to October's services sector Purchasing Managers' Index, which is forecast at 56.7, down from September's 57.0. That would still be well above the 50 line between contraction and growth, keeping intact the view that the Bank of England will raise interest rates to 5 percent next Thursday. A strong number may increase the view of further tightening in early 2007.

The major focus for today will be U.S. October employment data. Economists forecast the U.S. economy added 125,000 non-farm jobs so we should have some excitement as we close off another week. The sentiment in the US is very negative with the markets pricing in a 16% chance of a rate cut in January. This afternoon's figures have a clear skew to the risks on the upside for the USD.

Elsewhere the Indian Rupee is heading for a fifth weekly gain as investors pile into Indian equities on the back of the country's strong growth prospects. The South African Rand has slid into the end of the week after its early rise, as gold has slid on commodity markets and importers buy cheap USD.

Have a great weekend.

DH

Sterling looks to be an attractive sell at these levels this morning as further gains for the pound may be limited before today's European Central Bank meeting (12.45 pm) on speculation that ECB President Trichet and his fellow policy makers will signal they may need to keep raising rates into 2007. The consensus of expectation is that the Bank of England will raise rates to 5 percent at next week's (Nov.9th) Monetary Policy Committee (MPC) meeting which indicates this is already discounted in the GBP exchange rate and therefore the risks remain for a move lower in GBP.

The Federal Reserve Bank's Dallas member Fischer speaks to economists in New York at 5 pm today and his comments will watched by the markets with the USD appearing to find a little upward momentum against the Yen as gold drops in Asia for the first day in eight.

Meanwhile the Australian dollar, which has surged 3.5 per cent in the last month to a near six-month high is still regarded as good value as traders expect the Reserve Bank of Australia is almost certain to raise rates next week with followed by another increase next year while further upside expectations are supported because of record prices of commodities the nation exports have yet to be factored into its value.

Have a great day ahead.

GR

Sterling hit a 15-month high against the EUR on Tuesday, as British October house price data firmed expectations of a rate hike next week to 5%. Data released still showed the housing market remains healthy even after the unexpected Bank of England summer interest rate hike. But sterling's gains were later tempered by data from the Confederation of British Industry, showing that retail sales volumes had fallen this month at their fastest pace in seven months, compared with the market's expectations of an increase. BoE governor Mervyn King said on Tuesday that there were no sure bets when it came to the Monetary Policy Committee's monthly interest rate decisions, but pointed out that inflation was a little above target and there was not a great deal of spare capacity in the economy.

The dollar was little changed near a five-week low against the EUR and yen before a U.S. industry survey today that may add to evidence growth in the world's largest economy is slowing. The Institute for Supply Management's manufacturing index (13:30 this afternoon) may show growth held near the least since May 2005. Traders in interest-rate futures increased bets the Federal Reserve will cut borrowing costs in the first quarter. The dollar yesterday dropped to the lowest in five weeks as reports showed consumer confidence unexpectedly fell and Chicago factory output declined.

Canada's dollar dropped the most in three weeks after the government said it plans to increase taxes on foreign investors who own the country's income trusts. The decline sent the currency to a one-week low against the U.S. dollar. Finance Minister Jim Flaherty said late yesterday he will start taxing income-trust funds for the first time and raise dividend tax rates for foreign investors that own the trusts.

Norway's central bank may raise its benchmark interest rate for the sixth time since June 2005 to keep inflation low in the face of labor shortages and soaring borrowing. The Norges Bank will look to lift the deposit rate to 3.25 percent from 3 percent. The decision will be announced today at 2 p.m. in Oslo, when policy makers will update forecasts for inflation and economic growth.

The South African rand traded near its strongest in six weeks amid speculation higher prices for gold and platinum, which account for about a fifth of exports, will help the nation plug its current account deficit. The currency of Africa's largest economy rose by the most in three weeks yesterday after a report showed the trade deficit shrunk to its lowest this year during September.

Have a great day.

LR

Sterling has hit a 15 month high against the euro and a one-month high versus the dollar on Monday after strong British mortgage lending and money supply data cemented expectations of an interest rate hike next week. It is extremely likely that the Bank of England will hike interest rates to 5% in November. This has been further highlighted by the strong Nationwide data out this morning, pushing GBPUSD back up just as it started to look tired at the top.

Today the main focus will be on housing, consumer confidence and retail data; these shall give us further indication of Britain's interest rate outlook. This afternoon Mervin King is speaking to the House of Lords Economic affairs committee re monetary policy. In the US today the market is expecting a strong Consumer Confidence release and this should benefit the USD as we move towards this Fridays ever important payroll release.

The Australian dollar is heading for its biggest monthly gain since April as the interest rate picture has shifted towards further hikes. GBP, AUD and the EUR may also get a boost against the USD as the UAE authorities have suggested that they will no longer hold more than 50% of their reserves in USD so they will have a significant amount of USD to sell if and when they put this into practise.

Markets likely to get a bit spooky after the London close today - could be some real scary trades tonight and come to think of it a good chance of fireworks this weekend !

DH

The Pound strengthened last week against the Dollar and Euro after a report showed mortgage approvals rose in September. Hometrack, a London-based research company said selling prices for homes in England and Wales rose 4.3 percent in October, the fastest pace since August 2004. The pound also gained last week after both Chancellor of the Exchequer, Gordon Brown and Bank of England chief economist, Charles Bean urged more action to curb inflation in the U.K., which surpassed the bank's target for a fifth month, according to a report on Oct. 17.

U.S GDP data on Friday came in slightly weaker than expected and once again highlighted the fragility of the US economy at the moment and put pressure on the Dollar. All eyes this week will be focused on the release of the non-farm payrolls figures on Friday which will point out the direction of the next bout of sentiment towards the Dollar.

South Africa's rand rose to its highest in nearly six weeks amid speculation record growth in borrowing will prompt the central bank to raise interest rates. The currency of Africa's biggest economy gained 1.4 percent last week amid data releases showing consumer and producer inflation accelerated at their highest levels in more than three years.

There will also be a lot of FX focus on Japan over the next couple of days as the Bank of Japan meet to discuss interest rates tomorrow. Although a hike from their current level of 0.25% is unlikely, any hint of future rate rises will have a positive impact on the JPY and a negative impact on the USD.

VC

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