CURRENCY MARKET REPORTS

• BOE may face Inflation if stimulus stays to long

• Dollar slightly higher against major rivals

• FED Chairman Bernanke comments on a strong dollar

• Euro falls slightly against the dollar in overnight trade

• FTSE reaches 2009 high + gold breaks another record closing at $1,138.00

US Dollar: After the hammering the greenback took yesterday against the majors, the dollar is slightly higher against currencies such as the euro and pound this morning, but analysts doubt the U.S. currency’s recovery can last long. Investors saw Monday’s rally in U.S. stocks and oil as “an opportunity to keep pressing risk-seeking ideas and trades for the near term,” said Brian Kim, a currency strategist at UBS. Federal Reserve Chairman Ben Bernanke’s comments on a strong dollar had a fleeting effect on the currency. Bernanke reiterated that U.S. interest rates will remain low for an extended period of time, which favours higher-yielding alternatives to the greenback. “When Bernanke started talking about the economy, the tone was very pessimistic,” said Kathy Lien, director of currency research at GFT Forex in New York. With the prospect of low returns on the dollar for up to a year, investors have been selling greenback to fund the purchase of higher risk assets. Data 13.30: PPI YoY –1.7% from –4.8%. 14.00: Net Long-term TIC Flows. 14.15% Industrial Production 0.4% from 0.7%.

Pound: Sterling saw strong gains on both the euro and dollar yesterday, with cable gaining an impressive one and a half cents to take GBP/USD over the $1.6850 level. The pound also roared over the 1.1250 level on the euro as risk appetite continued in the currency markets. Bullish comments from Bank of England policy maker Andrew Sentence said the bank runs the risk of stoking inflation if it keeps emergency stimulus measures in place for to long as Britain’s economic recovery gains traction. Sentence said business and consumer surveys the global economic rebound and signs of slowing increase in unemployment suggests Britain has returned to growth. Bank of England Governor Mervyn King said last week he still has an open mind on whether to expand bond purchases after policy makers this month pledged to buy as much as 200 billion pounds. Signs of revival can be seen in the Confederation of British Industry’s manufacturing survey, which shows higher levels of investment intentions and stock levels when compared with this stage of previous recessions, said Sentence, a former CBI economist. He said that retail surveys by the CBI and the British Retail Consortium show positive signs. He also said that the labour market is showing evidence of improvement while the global economic recovery will aid the UK particularly after the significant drop in the pound. Data 09.30: CPI YoY 1.4% from 1.1%.

Euro: The euro may rise to a 15-month high against the dollar to 1.5285 should it advance beyond so–called resistance levels set around the 1.5063 area according to Bank of Tokyo-Mitsubishi UFJ Ltd. The euro traded at 1.4970 in overnight trade unchanged from trading sessions late yesterday. Europe’s currency has risen 7.1 percent versus the dollar this year. The 1.5163 level is 76.4 percent retracement of the decline from July 2008 high of 1.6038 to the October 2008 low of 1.2330, based on a series of numbers known as the Fibonacci sequence. The 1.5285 level is the low set on May 8th 2008, according to data compiled by Bloomberg. Support typically becomes resistance when it is broken. Data 10.00: E/Zone Trade Balance.

General:
The Australia dollar came off 40 points to US$0.9334 after minutes from the Reserve Bank of Australia raised doubts about whether the central bank will continue to raise rates at its next policy meeting on Dec. 1. The Reserve Bank of Australia flagged further gradual increases in interest rates but said it is unsure how quickly it will make the policy adjustments.

Mid-prices

GBP/USD 1.6823
GBP/EUR 1.1255
EUR/USD 1.4944
GBP/JPY 149.44
GBP/AUD 1.8077
GBP/NZD 2.2548
GBP/ZAR 12.4760
GBP/CHF 1.6997
GBP/CAD 1.7673
GBP/SGD 2.3301
GBP/THB 55.61
GBP/HKD 13.041

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