Foreign Currency Report –20th November 2007

GBP

Yesterday saw the release of UK house price data, showing that prices declined in October, added fuel to the speculation that the Bank of England may need to cut interest rates soon. This concern was also echoed by the head of Barratt Developments as he gave warning that the decline in the housing market will continue into 2008. It was revealed that sales of Barratt new homes have fallen by 14% since the summer.

Sterling
weakened against both the Euro and the US dollar on the back of these figures.

Data is a little thin from the UK today but tomorrow sees the release of the Bank of England minutes. Nothing out of the ordinary is expected.

EUR

German inflation data released this morning was higher than expected, dominated by movements in oil and food prices. The Euro has gained strength against the dollar and has rallied up to all time highs.

Inflation is still a cause for concern for the ECB whose monetary policy is still on the hawkish side, therefore rate hikes cannot be written off.

With the current Euro exchange rate strength, it seems an excellent time to be selling Euros against both sterling and the dollar. This is the 1^st time exchange rates for GBP/EUR has been in the 1.30's for 4 years.

USD

Since the open this morning, the dollar has slid to near record lows against the Euro. There is still speculation about the economic outlook of the US, but some light may be shed as we see the 1^st quarterly economic forecast report and the FOMC minutes released later today.

News yesterday surrounding Citigroup did nothing to dampen speculation on the potential Fed policy changes. It was noted by analysts at Goldman Sachs that the world's biggest bank may need to take another write-down on its sub prime related investment portfolio of around another $4 billion. They downgraded their recommendations for Citigroup shares from "neutral" to "sell".

Goldman Sachs also issued a report stating that housing prices in the US are likely to fall further resulting in a gloomy outlook for their economy.

Credit Crunch

Further concern over the recent Credit Crunch caused more pain for investors yesterday as shares in UK banks such as Bradford & Bingley and the Alliance & Leicester, fell causing the FTSE 100 stock market to head lower.

The move down in the FTSE 100 wiped £40 billion from the value of portfolios as it fell by 170 points.

One of the other banks that are coming under increased pressure to declare its exposure to the US sub prime market is RBS. Investors fear that RBS report may well follow those seen by Barclays and HSBC, which were released recently.

The result of these stock market jitters saw the cost of borrowing between banks rise again yesterday as concerns over funding begin to filter back into the money market.

Are we going to see the UK economy slide like that in the US One thing is for sure, the Bank of England definitely have a difficult time ahead with rising inflation and the credit crunch to deal with.

This may be an ideal opportunity for anyone looking to purchase currency to take advantage of a forward contract before sterling loses further ground.

In these extremely volatile markets it is very easy to get greedy seeing markets move in your favour and just as easy to extend losses when waiting for markets to bounce back. By speaking to one of our trained currency brokers about your currency requirements and the different products we can offer, we can tailor our approach to meet your personal requirements. Please feel free to call on +44 207 989 0000 or email djw@fcexchange.co.uk