• Euro slipping against USD and Sterling
• Dollar strength on interest rate & inflation speculation

Market overview

So criminals who carry out their foul deeds on away days overseas don’t have a record in the UK; that means Blair’s actions in Afghanistan and Iraq won’t be held against him and it also means that the cheeky girls won’t be held to account for any records they sold abroad - more is the pity. Perhaps the overseas rule is behind the planned British mission to the moon in some bizarre way...but probably not. Anyway, currencies; they’re funny aren’t they.  The Pound made gains yesterday after rumours abounded that the European central Bank would wait before raising their base interest rates; perhaps as long as five months. However, Sterling lost some of that lustre this morning after a widening of the UK trade deficit to £7.19 billion in November and a revised larger trade deficit in October. This is in keeping with the rise in retail sales and the pressure that places on the demand for cheap imported goods. No wonder the trade gap widened when we export so very little these days and import everything India and China can produce for tuppence a pair. The rest of today revolves around US trade deficit and wholesale inventories as well as a speech due from a Federal Reserve member.  Away from currencies, the oil market is causing some ructions with Russia in dispute with Belarus and this argument damaging Germany’s oil supply and the slump in oil prices elsewhere seemingly ignoring the longer term implications of a muscular Russian oil policy.  However, the direct impact on Sterling seems muted  whilst the knock on effect in the Rand and Canadian Dollar is quite marked with traders getting out of their contracts faster than a Big Brother housemate seeking freedom. Opportunity is knocking for whose who need to buy either of these currencies. Have a great Wednesday.

Currency - GBP - Euro

The Euro is remarkably affordable today for anyone in the UK who needs to buy some. As mentioned above, the ongoing ‘will they - won’t they’ over whether the European Central Bank will hike interest rates in the first or second quarter of 2007 is buffeting the Euro and of course the Pound is wavering on a similarly unclear interest rate path. However, traders are pretty convinced the Bank of England will hike their base rate by 0.25 percent when they meet in February and that is certainly underpinning the Pound. This morning’s UK trade deficit shock wasn’t good news for Sterling but it doesn’t appear to have rocked the Pound to greatly. So we go into dormant mode ahead of the interest rate decisions from the Bank of England and the European Central Bank tomorrow and yet we are all expecting no change in either exchange rate.  Strewth currency traders are easily pleased. However, with the expectations for UK interest rates firmly priced into the markets, we should be more w ary of a fall in the GBOPEUR rate than any rise.

Thought for the day

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FX Research and Analysis undertaken by:
David Johnson - Halo Financial