17th August 2010

Good morning,

It was another quiet day in terms of data for the UK yesterday, with no real releases of note. The Pound itself climbed above the 1.22 level against the Euro; the uncertainty surrounding the Euro zone recovery as well as continued risk aversion leading to these gains. Overall GBP/EUR traded a 70 pip range with the high of the day at 1.2220 and the low at 1.2150. Today is much the opposite with important economic information coming from both the Consumer price index and retail price index, both of which are used as a measure of inflation in Britain. After three consecutive months of decline, the consumer price index is expected to drop further, showing inflation to fall as low as 3.1%.

The Euro zone continued to battle risk aversion yesterday, there was a delivery of results for the Euro zone Consumer price index that showed figures were as predicted by many analysts. It was neither here nor there, the Euro did not decline any further than we have seen in the last week nor did it climb from recent lows. The uncertainty surrounding an unbalanced recovery in the EU and similar economic concerns in the US mean many investors continue to hold their risk averse stance, therefore keeping EUR/USD rates trading between 1.2871 and 1.2732 yesterday. We’ll also receive important information for both the European current account and ZEW economic sentiment survey today, the first is expected to make a positive gain of almost €2Bn whilst the latter reports on the optimism or for that matter the pessimism in the state of the EU economy.

There was a relatively small movement in Dollar based currencies, the only release came from NAHB whom reported an actual drop in the housing market index rather than the gain many had foreseen. Historically these figures have had an effect on Dollar volatility, this was not to be the case yesterday with GBP/USD rates trading between 1.5532 and 1.5695. The increase in risk aversion has been all over FX headlines of late, negative data will have only added to this but with investors now fully versed in the troubles being experienced by the US, it seems as though risk aversion alone could not force rates any lower. An Indication of price increases for commodities in the US will be reported today, this will come from the producer price index and is forecasted to rise by 1.4%.

High Low Sup. Res.

GBP/EUR 1.2220 1.2150 1.2150 1.2250

GBP/USD 1.5695 1.5532 1.5600 1.5700

EUR/USD 1.2871 1.2732 1.2800 1.2900

Have a great day.

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