Foreign Currency Report –14th November 2007

GBP

Rising petrol prices pushed the UK inflation rate to 2.1% in October, above the government's 2% target, official figures show. The rise in the consumer prices index also stemmed from higher food prices. Strong figures released by the Office ofNatational statistics pretty much end the hopes for an interest cut this side of Christmas.

When deciding the UK monetary policy, the Bank of England target inflation levels. They aim to keep inflation in and around the target level of 2%. If inflation rises too high, the Bank will look to curb spending by increasing interest rates. This in turn will strengthen the pound and therefore some exchange rates may push higher.

Mortgage lending fell again in September as interest rate rises continued to slow the housing market and prices continued to fall.

Bank of England's quaterly inflation report is due out today, traders will be looking for signs of the BoEs next move

EURO

The German ZEW (

The ZEW is a non-profit economic research institute with the legal form of a limited liability company
) survey of analyst sentiment fell to the lowest level in 15 years but that did not prevent the Euro from rebounding against the US dollar
yesterday.

For the ECB, what matters the most is what gets out of hand faster; growth or inflation. If oil prices continue to rise above $100 a barrel, the central bank may have no choice but to raise interest rates.

Data due out today is the Eurozone GDP, both French and German GDP are expected to be strong.

USD

Federal Reserve Bank of Dallas President Richard Fisher said while the Fed remains "ready to act if needed" in response to credit markets, the economy will probably keep growing and inflation risks are rising. The comments add to policy makers' expressions of concern that U.S. price pressures will rise as energy and commodity costs climb. Chairman Ben S. Bernanke said last week that inflation and growth risks are "roughly" balanced, even as traders anticipate the Fed will cut interest rates again next month.

Beyond the troubles in financial markets, we have had an otherwise healthy economy in the U.S.,'' the Dallas Fed chief said. "The economy has been weakened, but it has not shown signs of succumbing to the full-blown virus infecting housing."

While slower growth is possible, "the more likely outcome is for the U.S. economy to continue to expand at a sustainable pace" thanks to strength in services, spending on durable goods, and exports, fueled by a weaker dollar, Fisher said.

On the data front, today sees the release of US price data, Mortgage applications data and Retail Sales, all of which can have a bearing on the dollar so don't be surprised to see more market volatility.