NEWS / Foreign Exchange

U.S. Forex Market Commentary

EURO

The euro appreciated vis-? -vis the U.S. dollar today as the single currency tested offers around the US$ 1.4385 level and was supported around the $1.4315 level.  The common currency established a new lifetime high today and traders are eyeing the $1.4400 figure as another upside target.  Themarkets are now fully discounting a 25bps reduction in the federalfunds target rate on 31 October and many traders believe the fed fundstarget rate could end the year at 4.25% or 4.00%.  Data released in the U.S.today saw the final October University of Michigan consumer sentimentindex print at 80.9, weaker-than-expected and below September??™s readingof 82.0.  Traders will pay close attention tothis weekend??™s meeting of the Gulf Cooperation Council for anyindication that regional countries may modify or drop their U.S. dollarpegs.  This is especially of concern to traders as crude oil is at or near lifetime highs.  In eurozone news,the EMU-13 September M3 money supply measure expanded 11.3% y/y, downfrom August??™s level of +11.6% but still evidence of significant growthin monetary aggregates.  These data are likely tokeep the ECB on the offensive regarding inflation. Other data releasedtoday saw the November GfK consumer climate index fall to 4.9 from 6.7in October and this follows yesterday??™s pullback in the Ifo index.  Euro bids are cited around the US$ 1.4220 level.

JPN/CNY

The yen moved lost ground vis-? -vis the U.S. dollar today as the greenback tested offers around the ??114.56 level and was supported around the ??113.90 level.  Technically, today??™s intraday high was right around the 23.6% retracement of the move from ??124.15 to ??111.60.  Data released in Japanovernight saw the September core consumer price index decline for theeighth consecutive month, off 0.1% y/y. These are the latest evidencethat deflationary pressures persist in Japan and will render it difficult for Bank of Japan to lift the overnight call rate from its current 0.50% anytime soon.  Other data released today saw September industrial output fall 1.4% m/m and was up 0.8% y/y.  BoJwill convene on 31 October and is expected to keep interest ratesunchanged. The central bank is expected to reduce its GDP forecast forthe current fiscal year ending in March 2008.  The Nikkei 225 stock index gained 1.36% to close at ??16,505.63.  Dollar bids are cited around the ??113.85 /112.55 level.  The euro moved higher vis-? -vis the yen as the single currency tested offers around the ??164.55 level and was supported around the ??163.15 level.  The British pound and Swiss franc climbed higher vis-? -vis the yen as the crosses tested offers around the ??235.35 and ??98.45 levels, respectively.  The Chinese yuan weakened vis-? -vis the U.S. dollar as the greenback closed at CNY 7.4872 in the over-the-counter market, up from CNY 7.4820.  Data released in China today saw September wholesale prices up 6.2% y/y, compared with 6.5% in August.  Also,September property prices in 70 cities were up 8.9% y/y while agovernment economist reported 2007 inflation will likely print around4.5%.  Industrial and Commercial Bank of China announced it will purchase a 20% stake in South Africa??™s Standard Bank. Australian Treasurer Costello warned that a ???huge tsunami??? will ripple through the financial markets when China floats the yuan.

STERLING

The British pound strengthened vis-? -vis the U.S. dollar today as cable tested offers around the US$ 2.0575 level and was supported around the $2.0480 level.  Cable reached its strongest level since 25 July and came within 90 pips of a fresh multi-decade high.  Data released in the U.K. saw Land Registry house prices in England and Wales gain 0.4% m/m and 8.7% y/y.  NIESR reported it expects the U.K. rate of inflation to remain below Bank of England??™s 2.0% target until H2 2008.  Cable bids are cited around the US$ 2.0420 level.  The euro moved highervis-? -vis the British pound as the single currency tested offers aroundthe ?‚¤0.7010 level and was supported around the ?‚¤0.6980 level.

CHF

The Swiss franc appreciated vis-? -vis the U.S. dollar today as the greenback tested bids around the CHF 1.1620 level and was capped around the CHF 1.1665 level.  Data released in Switzerland today saw the September producer price inflation up 2.4% y/y, down from 0.3% in August.  Dollar offers are cited around the CHF 1.1805 level.  The euro moved higher vis-? -vis the Swiss franc as the single currency tested offers around the CHF 1.6735 level while the British pound came off vis-? -vis the Swiss franc and tested bids around the CHF 2.3830 level.

AUD/NZD

The Australian dollar appreciated vis-? -vis the U.S. dollar today as the Aussie tested offers around the US$ 0.9165 level and was supported around the $0.9075 level.  The pair established a new multi-decade high on speculation Reserve Bank of Australia will tighten monetary policy by 25bps on 6 November.  Australian dollar bids are cited around the US$ 0.9075/ 0.9005 levels.  The New Zealand dollar gained groundvis-? -vis the U.S. dollar today as the kiwi tested offers around theUS$ 0.7665 level and was supported around the $0.7605 level.

CAD