Foreign Currency Report - 06 July 2007

Market Report 06 07 07

GBP

The pound held above the $2 mark after the Bank of England raised interest rates and signalled that further increases may be needed to curb inflation.

The ECB lifted borrowing costs a quarter-point for the fifth time in 12 months, to a six-year high of 5.75 percent. The BOE said inflation risks in the medium term ``lie to the upside.'' Expectations for further rate increases this year rose to a record high after today's decision, futures trading showed.

Against the dollar, the pound rose to as high as $2.0207 yesterday, the strongest since June 1981. However the pound lost ground against the dollar towards the close of trading yesterday after a U.S. report showed growth in service industries unexpectedly quickened to the fastest pace in 14 months. This data was a sign that perhaps the U.S. economy might not be doing too badly after all.

Regarding recently published U.K. data, growth in property values quickened in June, rising 0.4 percent after a 0.3 percent gain the prior month, HBOS Plc said yesterday. A separate survey showed services industries grew at the fastest rate in five months in June.

So far this year the pound has climbed nearly 3 percent versus the dollar this year on anticipation that U.K. economic growth is outpacing the U.S., this is likely to be one of the factors to prompt the Bank of England to keep raising interest rates for the remainder of 2007 and the BOE hinted at yesterdays meeting that this will be the case later in the year.

EUR

The European Central Bank kept interest rates unchanged yesterday, the 13-nation currency also declined from the strongest level in more than two months against the dollar after policy makers left the benchmark interest rate at a six-year high of 4 percent, as forecast. "Our monetary policy is still on the accommodative side," ECB President Jean-Claude Trichet said at a press conference after the decision.

Economists forecast ECB policy makers will increase borrowing costs in September to 4.25 percent. The Federal Reserve kept its overnight lending rate at 5.25 percent last week and the Euro was variable with Sterling on Thursday in London, due to the imminent rate decisions in both regions. The currency edged higher in the early morning before dropping sharply mid morning and then rising again.

USD

The U.S. dollar was up on the other majors on Thursday evening in London. U.S. dollar traders considered the release of Automatic Data Processing's report on private sector employment, which showed that U.S. employment in this sector grew by 150,000 in June following an increase of 98,000 in May. Staying with employment data; today will bring the release of the Labour Department's June employment report.

Leading market participants to believe the Labour Department's jobs data released at 1230 GMT will be better than expected. Economists' median forecast was for 120,000 new jobs to have been created in June compared with 157,000 jobs in May, while the unemployment rate was seen unchanged at 4.5 percent.

The dollar was under pressure earlier this week on worries about weakness in the housing market, as well as security concerns after the recent terrorist troubles in London and also ahead of Wednesday's Independence Day holiday.

Traders have said the dollar was on the edge of more upward correction, as the data released so far this week has shown signs of economic strength, boosting expectations that the Fed will leave the benchmark rate at 5.25 percent for some time.

The global currency markets move every second, for up to date market information or to discuss your personal currency requirements contact one of our brokers on +44 (0)20 7989 0000 or email jjr@fcexchange.co.uk