Market Report

Sterling ticked up slightly against the dollar in pre-holiday trading on Friday as the greenback came under broad pressure ahead of a slew of U.S. data.

In the absence of major UK data, investors are eyeing U.S. data later in the session including inflation and consumer sentiment, which would give clues as to whether the Federal Reserve will cut interest rates in the next year.

Sterling has been buoyed in recent sessions as a run of strong data has bolstered the case for the Bank of England to raise interest rates early in 2007 from the current 5 percent, enriching the pound's already attractive yield.

The UK and the United States will be closed on Monday for Christmas, and the UK will remain shut for Boxing Day on Tuesday.

HAPPY HOILDAYS

DH

In the UK Monetary Policy Committee voted to keep bank rates on hold with a 9-0 vote, as was expected by the markets. However, a run of strong recent data has bolstered expectations that the BoE will raise interest rates to 5.25 percent in 2007.

Yesterday also saw Poland, Czech Republic and Slovakia all kept interest rates on hold, with all the central banks indicating they are in no hurry to raise interest rates.

Yesterday evening comments from the US helped the Dollar gain 1%, but today we have seen the dollar decline to the levels we saw yesterday.

At 13:30 today we have the initial jobless claims from the US, followed by the Philadelphia Fed index at 17:00.

Apart from this it will be winding down for the Christmas break.

DE

Sterling jumped across the board on yesterday after data released from the Royal Institution of Chartered Surveyors. UK house prices rose in November for a 13th straight month, adding to expectations of higher interest rates early next year. This demonstrates that that the market is still vigorous despite two rate hikes since August.

This morning at 9.30 we see the release of the minutes of the Monetary Policy Committee's (MPC's) December meeting. I expect the vote was a unanimous decision 9-0. In addition, the CBI Distributive Trades Survey for December is released at 11:00. In November CBI was weaker than expected at-9 and the CBI said that they expect a vast improvement for December's figures so should be good figures for GBP.

ECB President Trichet is currently addressing the European Parliament. We shall watch very closely his comments to see if there is any new emphasis regarding the ECB's Introductory Statement issued on Dec 7th. We shall see in particular if he mentions that the ECB will "monitor very closely" developments regarding there interest rates.

The USD story over 2006 has been one of weakness and is unlikely to make any real recovery in the remaining days of 2006 this year. No data from the states this today.

Have a good one.

DH

Sterling slipped to two and half week lows against the dollar and eased versus the Euro on Monday. A recent run of robust UK data had boosted expectations for a February interest rate hike, sending sterling to six-year highs against a basket of currencies at the end of last week. But the main reasons for the moves seem to be profit taking due to no economic releases out of Britain, investors took the opportunity to cash in gains, as thin volumes in pre-holiday markets.

Today we have see figures already released in the UK. The RICS housing market survey for November again highlighted the strength of the UK housing market. The headline house price balance was 47.4, down marginally from the 47.7 registered in October, but higher than the market expectation of 46.

The German IFO release this morning came out better that expect so this is good new for Euro's. This has confirmed that the interest rate cut done by the ECB has had an effect on the German Export market.

Data released later today is the US PPI at 13.30 and also US Housing 13.30. This morning we have seen gains from GBP against UUSD so this data should see some reaction.

Have a good day!!

DH

The CPI report on Friday from the US for November was unchanged, which was below the expected figures. This will give the FED less reason to change interest rates, which will explain why the dollar gained a cent and a half on Friday.

For today there is little in the way of economic data, The Eurozone trade balance and the US current account for Q3. However despite being the week before Christmas, there is still some important data this week. Tomorrow there is the release of the IFO index, which is expected to hit a new 15 year high.

In the UK on Wednesday is the release of the minutes from the Bank of England. This is expected to show a unanimous decision to keep rates on hold, but the report which accompanies this will make interesting reading.

Have a good week.

DE

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