UK To Cut Rates Next Year

EUR/USD is again stretching out its bullish arms; it reached an intra-day high of 1.4725, putting it within hair’s breadth of its record high of 1.4755. USD/CHF has dipped lower today to 12-year lows around 1.1175, and its next bear target is around 1.1140-50. EUR/USD’s momentum is clearly biased towards the upside as the market prices in another rate hike by the ECB.

ECB’s Fernandez Ordonez Wednesday warned of a prolonged period of uncertainty resulting from financial markets turmoil, renewed inflation pressures and “sharp and abrupt” forex movements. He said soaring oil and food prices pose a serious risk that inflation expectations could become “unhinged”.

Sluggish economic data from the US isn’t doing any good to the US dollar. US retail sales climbed 0.2%, which is in line with market consensus, but pales in comparison to the revised 0.7% increase in September. US producer price index for finished goods rose 0.1% in October, less than the 0.2% rise expected.

The BOE quarterly inflation report prompted long profit-taking actions in the British Pound after the bank said it could comfortably allow interest rates to drop from
their current level of 5.75% to around 5% without inflation getting out of control. BOE governor King said he expects GDP growth to slow “sharply” in 2008 and the bank forecasts at least one rate cut in 2008. “Further financial market fallout, either at home or
overseas, poses the biggest downside risk to activity,” the report said.

EUR/GBP rallied to a 4-year high while GBP/USD fell 200 pips today to around 2.0660.

Thursday:Reserve Bank of Australia monthly bulletin 0030 GMT

UK retail sales 0930 GMT

Swiss ZEW 1000 GMT

Eurozone CPI 1000 GMT

US CPI, empire manufacturing 1330 GMT

Philly Fed 1700 GMT

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