Market Report

There was no let up in the decline of the Dollar yesterday, as the dollar fell by one percent against both the Euro and sterling for a second consecutive day.

It looks likely that the European Central Bank will raise rates next Thursday to 3.5%, and this combined with the thought that interest rates in the States will drop to 5% we can see why many are calling for the dollar to weaken even further against the Euro.

Today sees the release of the CIPS at 9:30 which reports on manufacturing in the UK. More importantly at 15:00 we see the US ISM manufacturing index from the US. We also have the US October construction spending. Like the US ISM, we expect it to decline.

Another thing to look out for today is the talk by FED chairman Bernanke at the Forum in Washington on Monetary Policy.

Let's hope the North London derby tomorrow is as exciting as the currency markets have been this week.

DE

The pound advanced for a 10th consecutive day against the dollar, reaching its highest since September 1992, on speculation the Bank of England will keep lifting interest rates into next year.

The U.K. currency today traded at its strongest in more than 14 years, headed for its second monthly gain versus the dollar, as traders raised bets the Federal Reserve will lower interest rates, Many believe we will see $2 to the Pound before too long but I think the Dollar will be supported before then.

The dollar headed for a second consecutive month of declines before U.S. data that may show consumer spending barely grew last month and inflation slowed. The dollar dropped to a 20-month low against the Euro and the weakest in three months versus the yen this week. A Commerce Department report may show spending grew at a slower pace than average in October.

The Australian dollar strengthened to a 20-month high as retail sales rose more than expected, raising optimism economic growth will accelerate.

VC

The pound is headed for its longest winning run against the dollar in more than four years on expectations the Bank of England will keep lifting interest rates into next year.

The Pound extended gains for a ninth day, touching its highest in almost two years, as the dollar continued to slid versus 15 of the 16 most actively traded currencies. Traders raised bets the Federal Reserve will cut interest rates. Investors and analysts are now expecting the pound to continue to climb against the Dollar into the New Year.

ECB officials led by President Jean-Claude Trichet have signaled they will raise their benchmark interest rate another quarter point to 3.5 percent when they meet next week, the sixth such increase in a year.

VC

The pound rose versus the dollar for an eighth day, its longest winning streak in three months, after U.K. Chancellor of the Exchequer Gordon Brown said economic growth will exceed the government's forecast this year.

The U.K. currency also reached its highest in almost two years against its U.S. counterpart as the dollar slid versus 12 of the 16 most actively traded currencies on speculation the Federal Reserve will cut borrowing costs. The Bank of England on Nov. 9 raised its benchmark rate to a five- year high of 5 percent.

The Euro rose to a record against the yen today after yesterday touching a 20-month high versus the dollar, sparking concern among economists and investors the move will hurt Europe's exports just as global growth cools.

VC

Sterling rose to its highest level in nearly 2 years against a broadly weakening dollar on Friday. The dollar has been under pressure since late last week as speculation about central bank reserves diversification away from dollars and concerns about the U.S. economy. Sterling is one of the best performing currencies against the dollar this year, rising more than 12 percent since January.

A second release of third quarter British GDP data failed to lift sterling with growth coming in at 0.7 percent on the quarter, in line with forecasts and unchanged from the original estimate. The Euro on the other hand remained firm after a recent run of stronger than expected data from the Euro zone.

This morning property consultant Hometrack said British house prices rose in November at their fastest annual pace since August 2004, underscoring signs that rising interest rates have not yet dented demand. This may lead to further hikes in the first quarter of the New Year.

A quiet day for economic data today Rachel Lomax speaking this evening - may show some insight into recent MPC thinking. Otherwise a quiet week ahead data wise - Nationwide house price index Thursday and Cips manufacturing data Friday.

Have a good day!

VC

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