U.S. Forex Market Commentary

EURO

The euro extended recent gains vis-?�-vis the U.S. dollar today asthe single currency tested offers around the US$ 1.4705 level and was supportedaround the $1.4615 level. The commoncurrency recovered from earlier intraday weakness after Federal ReserveChairman Bernanke warned the U.S.economy would likely decelerate in Q4 and expand below its long-term growthrate in H1 2008. On the inflation front,Bernanke added oil prices are increasing the risks of inflation and noted theFed would not hesitate to adjust policy ???as needed.??? Notably, Bernanke also suggested the weakerU.S. dollar are other factors that are likely to increase overall inflation. Traders seem to be convinced the Fed is moreconcerned with the lower growth scenario at this stage compared with inflationas the December federal funds futures contract is now pricing in about a 93%chance the FOMC will reduce its overnight target rate by 25bps to 4.25% at its11 December policy-setting meeting. Likewise,the market is pricing in about a 74% change the federal funds target rate willbe lowered to 4% by the end of the FOMC??�s two-day meeting at the end ofJanuary. Data released in the U.S. today saw weeklyinitial jobless claims fall 13,000 to 317,000 while continuing jobless claimsfell 4,000 to 2.579 million. U.S. retailershave announced weak sales results for October and economists are downwardlyrevising their forecasts for holiday spending. In eurozone news, the European Central Bank kept its main refinancingrate unchanged at 4.00% as expected. ECBPresident Trichet was hawkish in his remarks and noted ???The information available since our previousmeeting fully confirms that the outlook for price stability over the mediumterm is subject to upside risks. Against this background, and with money andcredit growth vigorous in the euro area, our monetary policy stands ready tocounter upside risks to price stability as required by our mandate.??? Trichetcharacterized recent exchange rate movements as ???brutal and never welcome??? andreiterated the U.S.continues to pursue a strong dollar policy. The European Commission announced it is ???obviously concerned??? withvolatility in the euro and oil. Eurobids are cited around the US$ 1.4560 level.

JPN/CNY

The yen depreciated vis-?�-vis the U.S.dollar today as the greenback testedoffers around the ??113.35 level and was supported around the ??112.05level. The pair earlier reached itslowest level since 17 August before retracing intraday losses. Data released in Japan overnight saw Octoberbank lending 0.7% while the October money supply expanded +2.0%, up from +1.7%in September. Also, October orders forindustrial machinery rose 9.9% y/y while core private-sector machinery orderswere off 7.6% m/m. Additionally, theOctober economy watchers??� index fell for the seventh consecutive week with thecurrent conditions index lower at 41.5 from 42.9 in September. The Nikkei 225 stock index lost 2.02% toclose at ??15,771.57. Dollar bids arecited around the ??111.60 level. The euro moved higher vis-?�-vis the yenas the single currency tested offers around the ??166.15 level and was supportedaround the ??164.00 figure. The British pound and Swiss franc gainedground vis-?�-vis the yen as the crosses tested offers around the ??238.85and ??100.10 levels, respectively. The Chinese yuan appreciated sharplyvis-?�-vis the U.S. dollar as the greenback closed at CNY 7.4207 in theover-the-counter market, down from CNY 7.4421 and the pair??�s lowest close sincethe July 2005 yuan revaluation. PBoCreported it sees 2007 GDP growth up more than 11% with CPI up 4.5%. China??�s trade surplus registeredUS$ 185.65 billion in the first nine months of 2007.

STERLING

The British pound movedhigher vis-?�-vis the U.S. dollar today as cable tested offers around theUS$ 2.1150 level and was supported around the $2.0970 level. Sterling Traders believetoday??�s vote on interest rates was probably a close one as the market had beenpricing in about a 25% change that rates would be trimmed. Data released in the U.K. today saw the September leading indicatorfall 0.1% while HalifaxOctober house prices fell 0.5% m/m and were up 8.9% y/y. Cable bids are cited around the US$ 2.0975level. The euro weakened vis-?�-vis the British pound as the singlecurrency tested bids around the ?��0.6950 level and was capped around the ?��0.6980level.

SWISS

The Swiss franc appreciated vis-?�-visthe U.S. dollar today as thegreenback tested bids around the CHF 1.1250 level and was capped around the CHF1.1345 level. The pair reached itslowest level since May 2005. Datareleased in Switzerlandtoday saw the October unemployment rate print at 2.6%, up from 2.5% inSeptember. Many traders believe SwissNational Bank will tighten monetary policy further in December. U.S. dollar offers are cited around the CHF1.1410 level. The euro and British pound came off vis-?�-vis the Swiss franc asthe crosses tested bids around the CHF 1.6530 and CHF 2.3735 levels,respectively.