The Bank of England and the European Central Bank left their respective base rates

on hold at 5.75% and 4.00%. These outcomes were expected and therefore the

reactions muted. As usual the BoE MPC did not release a statement. However the

ECB President did address the press and participated in a questions and answers

session. Trichet had to choose his words carefully and remained calm under

pressure, as too much emphasise in either direction could cause substantial

reactions for the euro. The recent euro strength has drawn out comments of

discontent from some of Europe’s leaders, who feel current conditions are impacting

negatively on their economies. The ECB did however reiterate that they were

committed to keeping inflation in check and would continue to take steps to ensure

inflationary expectations remained low.

The Fed chairman, Ben Bernanke, testified last week and as expected his comments

were largely consistent with the FOMC’s October statement. He did however

downsize his growth predictions claiming growth “would slow noticeably in the fourth

quarter”. Essentially his testimony warned of possible continued tightening in credit

markets and further risks from weaker housing prices. This put dollar under new

pressure mid week, with a rally to 2.1150 in GBPUSD.

These Cable highs proved to be short lived with the resurgence of credit market

concerns and the subsequent sell-off in any higher risk assets. Equity markets

tumbled along with commodity and the high-yield basket. NZD, CAD, AUD, ZAR, and

GBP all fell as traders scrambled for safe haven currencies and sold back out of their

carry trades. JPY and CHF got the largest gains in a reversal that saw GBPUSD lose

more than 2.5%.


The week ahead

The key event this week will be the Bank of England Inflation report. There is

a good chance the MPC will lower their growth forecasts and publish inflation

predictions inline with a Bank cut in the foreseeable future. Some sectors

have already criticised the bank for not loosening already and we expect the

report to hint at a rate cut for early next year.

UK CPI should have remained under the BoE target of 2.0%, but might have

edged up slightly to 1.9% from 1.8% previous.

Retail data will be significant from the US. Recent tightening of credit

conditions has seen many US sectors slow and the market will be interested

to know if the Fed’s attempted jump start, in the form of interest rate cuts, has

had any effect.


Economic Research


0207 801 9084


Currency Rates Low High Current


GBPEUR 1.4232 1.4417 1.4166


As expected the ECB held rates last week at 4%. Trichet’s follow up press

conference was very cagey and with no mentions of monetary vigilance, inflation

should be seen to fall in the New Year in the Euro zone. Increases in German

industrial production were offset somewhat by a fall in orders and retail sales figures

dipping to 1.6% from 2.2%. Euro strength as previously reported has brought about

consternation with the Germans, French and Italians protesting due to the export

good drop off unions are complaining about in their respective countries. However

with credit crunch fears re-emerging EURUSD should retrace from the highs.


GBPUSD “Cable” 2.0781 2.1161 2.0685


The dollar has continued to weaken over the past week, once again breaking and

remaking 26 year highs. Strange times bring about strange news flow as everybody

from the Chinese government to Jay-Z, the rapper, expressed desires to diversify

away from the USD towards the Euro. Fundamental data, although dollar positive,

has not been able to halt the slide; PMI was recorded at 55.8 against an expectation

of 54.8. Dollar did make some of its losses back on Friday however as technical

resistance and rumours of credit crunch pressures on British financial institutions

weighed on sterling.


Commodity currencies Low High Current


A slight unwinding of the carry trade has seen commodity currencies come under

pressure in the past week.


GBPAUD 2.2305 2.3172 2.3226


Carry trade problems and movements away from risky assets has brought Aussie

back from the all time highs against the USD we’ve seen in previous weeks. As with

the other Central Banks, the RBA decided to act with the consensus and raised rates

by 0.25% to 6.75%, the fillip seen on yield value will do well however to maintain in

the face of substantial risk aversion environmental pressures.


GBPNZD 2.65045 2.7445 2.7346


Unemployment figures dealt kiwi a hefty blow last week as figures showed 0.3

decrease as supposed to the expected 0.4 increase. This combined with weakness

in the equity markets and a general move away from riskier assets may hurt kiwi in

the short term.


GBPCAD 1.9011 1.9802 1.9870


The Canadian government voiced greater concern over the currency with Prime

Minister Harper stating that the rapid gains required a period of reflection over

exchange rate policy. The Bank of Canada also voiced concerns that the currency

had appreciated so fast over the past few weeks. With carry trade unwinding a strong

possibility of a move to parity may be not far off.


Low High Current


GBPZAR 13.475 13.9247 14.05


Following a fairly hawkish review of the economy earlier last week another rise in

interest rates seems to be on the cards for December by the MPC. Rand was hurt a

smidge by a fall in manufacturing output due to an earlier 3 week strike although this

is not believed to signal any cooling of inflationary pressures.




Please see GBPEUR comments above. EURCYP is pegged in preparation for Euro

entry and so GBPCYP moves proportionally with GBPEUR. [Update: The Cypriot

government has allowed the currency to strengthen very slightly to 0.573 against

EUR, in light of market pressure. The pair is now stable here.]


Produced by Jabu Henson and Jeremy Cook (


Please feel free to contact me at anytime regarding these briefings, if you have any

questions or thoughts on them, or if you are interested in a particular event in the


Please call us on 0800 001 5055 if you have any questions or would like to discuss

the markets.

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The above comments are only our views and should not be construed as advice. You

should act using your own information and judgement. Although information has

been obtained from and is based upon multiple sources the author believes to be

reliable, we do not guarantee its accuracy and it may be incomplete or condensed.

All opinions and estimates constitute the authors own judgement as of the date of the

briefing and are subject to change without notice.

Any rates given are interbank and therefore for amounts of £5million and so are not

indicative of rates offered by World First for smaller amounts.


This week’s data Previous Expected


Tuesday 13 November


UK 00:01 RICS house price balance Oct -14.6 -19

UK 09:30 CPI, % M/M Oct 0.1 (1.8 Y/Y) 0.3 (1.9 Y/Y)

UK 09:30 RPI, % M/M Oct 0.3 (3.9 Y/Y) 0.4 (4.2 Y/Y)

Germany ZEW economic expectations


Nov -18.1 -20

E13 10:00 Industrial production, % M/M Sep 1.2 (4.4 Y/Y wda) -0.2 (4.5 Y/Y wda)


Wednesday 14 November

UK 10.3 BoE Inflation





E13 07:00 New car registrations, % Y/Y


Oct -4.1 …

Germany Final HICP, % M/M Oct 0.2 (2.7 Y/Y) P 0.2 (2.7


Germany Final CPI, % M/M Oct 0.2 (2.4 Y/Y) P 0.2 (2.4


Germany Preliminary GDP,% Q/Q Q3 0.3 (2.5 Y/Y) 0.7 (2.5


UK 09:30 Whole economy average

earnings, % 3m/y

Sep 3.7 4.0

UK 09:30 Core average earnings, %


Sep 3.7 3.8

UK 09:30 Claimant count

unemployment, change k

Oct -12.8 -6.0

E13 10:00 “Flash” GDP, % Q/Q Q3 0.3 (2.5 Y/Y) 0.6 (2.5 Y/Y)

US 13:30 PPI, % M/M Oct 1.1 (4.4 Y/Y) 0.3 (6.3 Y/Y)

US 13:30 Core PPI, % M/M Oct 0.1 (2.0 Y/Y) 0.2 (2.6 Y/Y)

US 13:30 Retail sales, % M/M Oct 0.6 (5.0 Y/Y) 0.2 (5.3 Y/Y)

US 13:30 Retail sales ex autos, %


Oct 0.4 (5.1 Y/Y) 0.3 (5.9 Y/Y)

US 15:00 Business inventories, %


Sep 0.3 (3.2 Y/Y) 0.3 (3.1 Y/Y)

NZ 21:45 Retail sales, % M/M Sep 0.2 0.5

Japan 23:50 Tertiary Industry Index, %


Sep 1.3 -1.0


Thursday 15



Sweden 08:30 Unemployment rate, % (nsa) Oct 4.2 …

Norway 09:00 Trade balance, NOK bn Oct 29.2 30.5

UK 09:30 Retail sales, % M/M Oct 0.6 (6.3 Y/Y) 0.1 (4.8


E13 10:00 HICP, % M/M Oct 0.4 (2.1 Y/Y) 0.5 (2.6


E13 10:00 HICP ex tobacco, index (2005 = 100) Oct 104.59 (2.06 Y/Y) …

E13 10:00 “Eurostat” core (HICP x fd, alc, tob, ene),

% M/M

Oct 0.3 (1.8 Y/Y) 1.9

E13 10:00 “ECB” core (HICP x unproc.fd, ene), %


Oct 0.4 (2.0 Y/Y) 0.3 (1.9


E13 10:00 BarCap underlying, % Y/Y Oct 1.95 …

Canada 13:30 Manufacturing shipments, %M/M Sep -1.7 -0.4

US 13:30 CPI, % M/M Oct 0.3 (2.8 Y/Y) 0.3 (3.5


US 13:30 Core CPI, % M/M Oct 0.2 (2.1 Y/Y) 0.2 (2.2


US 13:30 NSA CPI, index Oct 208.490 208.871

US 13:30 Empire manufacturing index Nov 28.8 20.0

US 13:30 Initial jobless claims, thous (4wk mvg


20 Nov 317 (330) 320

US 17:00 Philadelphia Fed index Nov 6.8 5.0


Friday 16



Swi 08:15 Adjusted real retail sales, % Y/Y Sep 3.8 …

E13 10:00 Trade balance, ¤ bn (sa) Sep 4.3 3.0

US 14:00 Net foreign security purchases (TICs), $


Sep -69.3 80.0

US 14:15 Industrial production, % M/M Oct 0.1 (1.9 Y/Y) 0.1 (2.2


US 14:15 Manufacturing production, % M/M Oct 0.1 (1.6 Y/Y) …

US 14:15 Capacity utilisation, % Oct 82.1 82.0



Bull/Bullish: one who thinks a market, currency or asset will appreciate


Bear/Bearish: one who thinks a market, currency or asset will depreciate

Pip: the fifth significant figure of a currency price: 1.2345

Big figure: the third significant figure of a currency price: 1.2345


Basis point: a 0.01% unit


Tightening (Interest Rates): raising interest rates (loosening is opposite)


Hawkish: comments that suggest interest rate tightening i.e. moving higher


Dovish: comments that suggest interest rate loosening i.e. moving lower


MPC: Monetary Policy Committee, the body that sets UK interest rates


ECB: European Central Bank, the body that sets the Eurozone interest rate


RBA: Reserve Bank of Australia: the central bank of Australia.

Cross-Currency Pair Flow: Where a set of three interlinked rates, e.g. GBPEUR, EURUSD and

GBPUSD, move as any combination of two of these rates must produce the third in order to satisfy a

condition known as No Arbitrage. If there are movements in two markets, then the third must move

deterministically. Also knows as triangulation.

Carry Trade: Simply put, is the borrowing of money in a low interest economy (Japan) and investing it in

a higher yield economy (Australia). This yields a certain profit unless the interest rate differential

narrows, or the exchange rate moves such that it costs more to buy the currency back.

Fair Value- Also called financial fair value: A measure of the theoretical exchange rate using certain

Macroeconomic models (such as eCIP).

Underlying Inflation: A somewhat academic measure of long-term inflation- removing all the’

interesting’ elements like energy and luxury consumption leaving the ‘boring’ elements like utility bills

and food. [Quotes from BoE governor Mervyn King]

Interest Rate Traction: Although there is a group of people who announce an interest rate, it has to feed

through the economy through some very complex and poorly understood channels. Once rate hikes are

having an effect on inflation and long term yields it is said that they are finding traction with the


Unemployment rate: The percentage of people who are able and ‘willing’ to work (ie in the labour

force) who are not employed.

Participation rate: The percentage of the population of working age in the labour force.