Market Report

This morning saw the Dollar weaken significantly against both the Euro and Sterling. This seems to be purely based on the thin market and orders being filled not due to economic factors. Sterling has reached a five year high against the Dollar and the Euro reached an 18 month high.

The U.K. currency rose the most in three months against its Dollar yesterday after minutes from the central bank's latest rate-setting meeting showed the nine-member committee, led by Governor Mervyn King, voted 7-2 in favor of raising the key rate by a quarter point to a five-year high of 5 percent.

The Australian dollar headed for a second weekly gain on speculation the nation's interest-rate advantage over the U.S. will drive demand as global investors seek higher returns.

The currency yesterday reached a three-week high as traders bet the Reserve Bank of Australia is more likely to raise rates, benefiting the local dollar as investors seek to exit investments in the U.S., where the Federal Reserve may cut rates.

VC

The Dollar dropped towards a five and a half month low against the Euro and a two month low against the Yen yesterday. This bearish movement for the dollar occurred, despite there being no change in the outlook for the US economy or Federal Reserve policy. Market commentators are attributing this trend to the US holiday this week, which has led investors to cut back on risky positions in their portfolios prior to the holiday. The Dollar's fall in the thin market was exacerbated by a below-expected US weekly jobless claims which provided an extra reason to sell the Dollar.

Sterling also appreciated against the Dollar, for a fifth successive day on the back of further speculation that the Bank of England ("BoE") will raise rates into 2007. This follows the release of the minutes from last month's BoE meeting yesterday which showed seven out of the nine committee members were in favour of a quarter point interest rate hike next year with inflation expected to rise further.

The Euro remains strong, with the market expecting the ECB to keep raising rates as the euro-region economy sustains its expansion, as stated by the International Monetary Fund in a confidential report to European finance ministers.

Elsewhere, the Rand reached its highest level against the Dollar for two months, as foreign investors were attracted by the South Africa's stocks and higher gold and platinum prices. The Australian and New Zealand dollars also rose against the Dollar, as investors look for currencies that offer higher yields compared with the U.S assets.

MA

Sterling edged higher against the Dollar and Euro yesterday, after British industrial orders for November were not as weak as expected. Foreign demand for British goods has risen at its sharpest pace in 11 years, a Confederation of British Industry survey showed. This data has helped bolster the appeal of sterling, which continues to attract investors keen to take advantage of the currency's relatively high interest rates.

Today we have see the release of the Minutes for Novembers MPC meeting voting 7-2. Last week's Inflation Report revealed that the Monetary Policy Committee as a whole continues to think that the risks to its inflation forecast are balanced and as such we see little prolonged GBP strength on the back of this.

As we edge towards the US holiday of "Thanksgiving" the markets have become quite thin. So we have seen GBP gain 0.4 % on USD. At 15.00 this afternoon we have University of Michigan Confidence. Confident consumers may be more willing to spend, helping the economy gain momentum after growing last quarter at the weakest pace in more than three years but should this figure come out below 93.0 we could see more gains for Sterling.

There is quite a fuss going on Down Under, A private consortium has been reported in the Australian press as making about an AUD 10bn takeover bid for Australia's largest airline - Qantas. The FX market has reacted to the deal with the Aussie already showing strength this morning.

DH

The pound may gain for a third day versus the dollar on expectations the Bank of England will continue raising interest rates into next year. The pound is near its highest in a week after a report yesterday showed property prices accelerated at the fastest pace in two years this month, even as the U.K. central bank raised lending rates to a five-year high of 5 percent this month. However the BoE tomorrow publishes the minutes to its latest rate-setting meeting. This could signal a bucking of the trend this festive period for GBP/USD, where usually GBP has a bid bias. We expect the selling to win out as we move in to year end.

Investors will push the Canadian dollar up from a seven-month low because reports in the next few weeks will show signs of strength in the economy, according to Westpac Banking Corp. Futures traders don't agree with that prediction. They're holding record bets the currency will fall, amid a drop in prices of Canada's commodity exports. Crude oil has fallen 25 percent from its peak in July.

South Africa's rand may gain for a second day as the price of platinum, one of the nation's biggest exports, surged by the most in almost 20 years.

LR

The Euro is expected to remain bullish this week following comments over the weekend by ECB president, Jean-Claude Trichet, who commented that the Eurozone must be hugely vigilant about the risk of inflation due to dynamic global growth. This follows previous signals by the ECB that it will raise interest rates at its next meeting on December 7th.

A report yesterday released by Rightmove showed UK house prices rose at their fastest rate for two years this month, which was higher than the market expected. However, Sterling was little affected by these figures this morning.

The Yen weakened to a record low against the Euro and also fell against 16 of the major currencies after a weekend meeting of a group of 20 Finance chiefs that discussed currency values. The market reacted negatively after the Group made no comment on the decline of Japan's currency.

With US Thanksgiving holiday this week, it is anticipated to be a quiet week for the Dollar.

MA

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