Foreign Currency Report – 1st October 2007

GBP

Northern Rock borrowed and additional £5bn from the Bank of England taking the lending up to £8bn after the emergency £3bn funding a fortnight ago.

Sterling
rose to seven-week highs on Friday against the dollar, which fell to record lows versus the Euro as well as other currencies.News out this morning on house prices shows that the only regions to gain were London and the south east of England with prices rising 0.1%.

The Bank of England left interest rates unchanged at a 6 year high of 5.75% last month to gauge the effect of the credit squeeze on inflation and economic growth. This week sees the release of the Bank of England Interest Rate decision. Expectations are for no change but some analysts would not be surprised to see the BOE follow the US Fed and cut rates.

Euro




Euro again looks set to rally after comments from ECB member Papademos said that rates in Europe were still on the ‘accommodative' side and only saw a small impact from the recent credit crunch.
The Financial Times reports that rising food and fuel costs will stoke the inflation fire in Europe taking the headline rate above the 2.0% ECB target forcing the bank to increase rates.

Data this week sees the release of euro PPI, PMI and retail sales figures, but all eyes will be on the ECB interest rate announcement on Thursday.No change is expected but the markets will be volatile as trading could push the euro either way on expectations of a potential cut or even a rate rise.

USD

The dollar hit a record low against major currencies and gold reached a 27-year high on Friday as investors ignored data suggesting that inflation moderated last month.Analysts said the prospect of rate cuts by the Federal Reserve and stronger growth outside the US was weighing on the dollar and boosting commodities. "The Fed's rate cuts have a specific driver – growth risks for the US economy," said Naomi Fink, senior currency strategist at BNP Paribas. For the seventh straight day, the euro set a record high against the dollar, rising to $1.4278. Alan Ruskin, chief international strategist at RBS Greenwich Capital, said central banks would express concern if the dollar "quickly approaches $1.45 against the euro".

GeneralNews

The Chinese economy is on target to expand by 11.6% in 2007, the highest since 2004 which will push inflation up to 4.6%. The target inflation rate set by the PBOC is 3.0%. The Chinese government have banned banks lending to property developers in a move to keep prices down for migratory workers.

Oil posted big gains on Friday on the back of a slightly weak dollar and demand driven by the onset of winter requirements. With Tropical Storm Lorenzo approaching the Mexico Gulf coast Texas gold should stay well.

To get a better understanding of the possible market movements and what information could affect your currency purchase, or to find out how you can remove the risk of market


fluctuations please feel free to give me a call on 0207 989 0000 or drop me an e-mail to mkb@fcexchange.co.uk