Foreign Currency Report 02 October 06

EUR
Micheal Glos, Minister of Economy for Germany has given a bullish forecast for growth in Europe's biggest economy. This is now expected to be between 2.0% and 2.5% in 2006, according to comments in a German newspaper.

The official forecast for 2006 has been 1.6%, but analysts now expect growth to exceed 2% by the end of the year.
Germany is emerging from several years of sluggish growth, which had put a brake on other Eurozone economies.

The recovery is said to be partly driven by consumer spending - particularly on the back of the recent World Cup football tournament, as well as strong exports of German goods abroad.
Experts have questioned whether the current economic upturn can be maintained.

Mr Glos said that he expected to see "the beginning of a turnaround" in Germany's labour market, suggesting that unemployment would eventually fall below four million.

Germany's jobless count fell by 134,000 to 4.24 million - or 10.6% of the population - in September, according to official figures.

GBP
The pound was little changed before a report that may show manufacturing expanded at a slightly slower pace in September than the month before.

Sterling posted its first weekly drop in three against the dollar last week as speculation the Bank of England will raise interest rates again this year wanes. Economists are predicting the central bank will keep leave the rate unchanged at 4.75%.

Sterling fell against the Euro and dollar after comments from Monetary Policy Committee member David Blanchflower and downwardly revised GDP figures.

NZD
The New Zealand dollar has continued its week-long decline against the US dollar, with further selling possible despite the absence of data on the immediate horizon.

The Kiwi dropped nearly half a cent against the USD and the AUD after weak gross domestic product data on Friday appeared to diminish the prospect of another interest rate hike.

Bank of New Zealand currency strategists have said the NZD should remain mildly negative in a quiet week " so it is now it is really a matter of poring over the next pieces of data which we might get from next week, to see if they might push the RBNZ towards further tightening."

The Kiwi was one of the worst performing currencies last week, falling 2.6 per cent against the greenback, 2.2 per cent against the Euro and 1.6 per cent against the Australian Dollar, on a combination of bearish comments from Finance Minister Michael Cullen and the subdued second quarter growth figures.

USD
The Dollar rose versus the Euro and the Yen as the US Commerce Department posted a surprisingly upbeat report on consumer spending.

Consumer spending adjusted for inflation fell 0.1% in August, the first decline in almost a year compared with a 0.8% gain in July. Most economists had forecast a 0.2% rise in August.

The report boosted confidence that the Federal Reserve may keep interest rates on hold and points to a rate cut in early 2007.