Market Report

Sterling closed in on five-week highs against the Euro on Thursday after robust British data heightened speculation that the Bank of England will raise interest rates further next year. British November retail sales figures, which followed robust earnings growth and labour market data earlier this week, supported the pound against the euros. Retail sales rose an above-forecast 0.3 percent on the month and 3.2 percent on the year, and the sales deflator rose for the third consecutive month, the longest run of increases since April 1999.

The pound tumbled against the dollar, Weekly U.S. jobless claims fell much more than economists had expected. This followed inflation and retail sales data earlier this week that has prompted traders to pare back their bets on U.S. interest rate cuts early next year.

Today is an important day for economic releases today with the latest data on inflation and industrial production scheduled for release from both the Euro area and the US.

Have a great day!!

DH

Today sees the release of the jobless claims figures from the United States which is expected to show a decline in unemployment benefit claims, this shows demand for labour in the U.S is holding up.

The Federal Reserve on Dec. 12 held its key lending rate unchanged at 5.25 percent for a fourth consecutive policy meeting and said the economy had slowed during the year, "partly reflecting a substantial cooling of the housing market."

The housing market is going through its worst slump since 1990 after the average price of homes rose about 60 percent in the last five years. New home sales are set to fall about 17 percent this year, while existing home sales may fall about 9 percent, according to forecasts by the National Association of Realtors.

The pound may gain against the euro for a third day on speculation quickening inflation and falling unemployment will force the Bank of England to keep raising interest rates.

The U.K. currency had its biggest two-day gain since Sept. 13 after reports showed U.K. unemployment unexpectedly fell by the most in almost two years in November, and consumer-price inflation quickened to the fastest rate in more than nine years.

VC

Yesterday the FED kept interest rates on hold in the US, which did not affect the markets as it was already factored in. The FED says the vote to keep rates on hold was 10 -1, so it was emphatic.

At 1:30 today, we look for US retail sales to show +0.2% after its decline in October.

The November inflation reports were stronger than expected. CPI rose 0.3% compared to the expected 0.2%. Today we see labour market statistics from the UK, with the expected figure 4.3% y/y compared to Octobers 4.1%.

DE

Sterling is expected to gain this week, following predictions by economists that Consumer Price inflation will increase to its highest level for nine years in November. A separate report is expected to show retail prises increased by the most in over eight years last month, leading to further speculation of a possible interest rate rise in 2007.

Former Fed chairman Alan Greenspan's talk yesterday rattled the dollar in the New York session when he warned investors to expect a few more years of dollar weakness until America's imbalances corrected. The dollar was not helped either by speculation U.S. Treasury Secretary Henry Paulson will push China to adopt policies that may weaken the U.S. currency across Asia despite his comments on Friday that a strong dollar is in the US' best interests. Today, the Fed is expected to keep the benchmark interest rate at 5.25%.

The Euro may gain on speculation a German report today will show investor confidence in Europe’s largest economy recovered from a 13 year low. This follows the quarter point interest rate rise by the ECB last week, with further rises expected in the New Year as it looks to control inflation.

Elsewhere, South Africa's Rand rose to its highest level in more than four months, increasing 7 per dollar, following speculation the yield premium of holding local assets will widen. Thailand's baht rose to the highest since the 1997 financial crisis on speculation accelerating economic growth will make the central bank less concerned about its advance.

MA

We had an eventful and non-sensical Friday afternoon, with the release of the US Non-Farm Payrolls and the University of Michigan consumer confidence figures.

There was good news for the dollar as there was 132k new jobs created in November. The dollar was then sold, which was a little strange as we would have expected the dollar to have been bought. This may have been because of the weaker than expected consumer confidence figure.

Later in the day, after the pound was two cents higher than it started, everything went into reverse after the US treasury secretary spoke about the employment figures as good news. GBP/USD ended as it had started earlier in the day.

The only data of note today is the UK PPI. Enjoy a quieter day.

DE

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