Hola amigos!

The week began with significant gains for sterling against the euro on the back of last weeks push beyond the key 1.13 level.

Tuesday saw the release of the previous month’s consumer and retail price indexes. The data, which exceeded forecasts by 0.3% on both surveys, indicates prices increased for December. This in itself was not unexpected, but it does put pressure on the Bank of England to address the specter of inflation rising whilst interest rates remain at a record low.

The Bank of England Monetary Policy Committee Minutes showed a 9-0 vote in favour of an unchanged monetary policy in respect of both bank rate and quantitative easing. The tone of the MPC Minutes was fractionally more positive than in the previous month. Reference was made to the upturn in the global economy, largely Asian driven, although there was evidence of stronger US growth in the fourth quarter. Yesterday also saw publication of the Bank of England monthly Agents survey which places more emphasis on anecdotal evidence, including feedback from business executives. The Agents Summary of Business Conditions made reference to a very gradual improvement in business sentiment, in part due to a recovery in export demand. If this scenario is sustained, this would be positive for sterling.

January is traditionally a period of heightened activity in the insurance, re-insurance and fixed income sectors. Internationally this activity incentivizes traders holding strong currencies to capitalize on the arbitrage potential in other markets and traditionally London benefits as the largest trader in bonds and exchange traded derivatives.

Analysts assert that any reduction in the unemployment rate in 2010 is likely to be very gradual, but in December Jobless Claims (Unemployment Change), although generally viewed as a lagging indicator, returned far better figures than expected with claims down by 15,200; also the Unemployment Rate, a figure that relates to November, dropped back to 7.8%. The number of unemployed people is an important signal of overall economic health because consumer spending is highly correlated with labor conditions, which puts a lot of focus on the retails sales figures over the Christmas period, and serves to reiterate the significance of the Bank of England’s role as the manager of inflation. This week has ended with the release of December’s retail figures. Fortunately they were better than the month previously, however not as good as forecast which prompted a slight drop off in sterling to a low of 1.1442 for the morning’s trading.

Despite these numbers, no rate hike is in the horizon. Mervyn King made a public appearance on Wednesday and cooled down such expectations. He said inflation could go above 3% but the likelihood is that it will cool later in the year, and preferred to focus on the problems of the economy, especially on the big government deficit.

Wednesday and Thursday of next week promise to deliver a mixed bag by way of information. There will be minor economic statements coming through from the Eurozone, mostly focusing on French and German spending and consumer and business sentiment, but these are unlikely to prompt any decisive change between sterling to euro. The 26th will see the release of the first HPI figures of the year, relative to December’s homes sales activity. Consumer sentiment in the UK has taken a bit of a knock already this year and many property agents are reporting greater interest, but less stock available.

The significant economic data released next week is the preliminary GDP figures. There are 3 versions of GDP, released a month apart – Preliminary, Revised, and Final. The Preliminary release is the earliest and thus tends to have the most impact and given that these figures chart the change in the inflation-adjusted value of all goods and services produced by our economy they will allow us to asses not only the accuracy of the governments figures for last year, but also the threat of inflation rising above the current 2.9% level. A GDP figure higher than forecast is usually sterling positive, so we could see the 1.15 level tested, but we do need a drive to 1.155 for the markets to stabilize around this support level.

Hasta la proxima!

Please feel free to contact me at keith.s@currenciesdirect.com and I will reply to all your questions promptly.

Visit us in our Spanish offices in Costa del Sol, Costa Almeria, S. Costa Blanca and N. Costa Blanca
Telephone: UK 0845 130 8148 • SPAIN 902 310 444 • Email: costadelsol@currenciesdirect.comwww.currenciesdirect.com

A very good work for sterling last week as it pushed beyond the key 1.13 level against the euro and also gained against the USD. The push on sterling was largely attributed to improved economic data leaning to a more positive outlook for the UK economy. In addition the National Institute of Economic and Social Research (NIESR) estimated that UK fourth quarter GDP which is due out next week will come in at +0.3%- so therefore the UK will be out of recession! The upbeat assessment was mirrored by MPC member Andrew Sentence who commented that the Bank of England may need to raise interest rates this year. So will this good run continue this week?

Hopefully so. We have a plethora of economic data and feedback this week from the UK economy which could galvanize sterling further. We start on Tuesday with the Consumer and Retail price index which is a gauge on inflation for the UK- the expectation is that the measures will show an increase in inflationary pressure which will add further to the probability of a rate rise in 2010. Following this we have the Bank of England minutes which may offer an insight into the cessation of the Quantitative Easing programme- possibly as early as February. Following this we have retail sales and jobless data followed by public finance data. So a big week for the pound and if we get more positives than negatives we could see a stronger pound ahead of the official release of Q4 2009 GDP next week.

For the Eurozone we are again focused upon Greece. Greek officials are summoned to Brussels to face a grilling over “unreliable data” which hid the real story behind the health of the Greek economy. This again could lead to a weaker euro, last week German Chancellor Merkel stated that the Greek problem is adding great pressure to the Eurozone.

The key market level will be to hold above 1.13 and then push back to 1.15 to show a clear break from the current trading range of 1.10-1.13.

Please feel free to contact me at keith.s@currenciesdirect.com and I will reply to all your questions promptly.

Visit us in our Spanish offices in Costa del Sol, Costa Almeria, S. Costa Blanca and N. Costa Blanca
Telephone: UK 0845 130 8148 • SPAIN 902 310 444 • Email costadelsol@currenciesdirect.comwww.currenciesdirect.com

Hola amigos!

2009 was a tumultuous year in the financial markets and a year to forget for the pound. Sterling started last year at all time lows against the euro and although we had a few sterling rallies, there was never the appetite to resurrect the pound. So where do we stand now against the euro and what will 2010 bring to the table?

The trading year started buoyantly for the pound as it gained against most of the majors following good economic data from the UK; UK Manufacturing PMI came in at a 25 month high and we also saw improvements in mortgage approvals and mortgage lending. However the gains in the pound on the first trading day of 2010 lasted only a few hours before it stuttered and turned south again. The reason for the slump was attributed to an article in the Telegraph which quoted US investment group PIMCO as stating that it will not be a buyer of Gilts in 2010 given the huge supply in the market. This is bad news for the Treasury, PIMCO is a very large investor and its change in sentiment will cause jitters for the Treasury who are relying on demand for Gilts. The response in the markets was sharp with sterling falling over 1% against the USD and the EUR- this reinforces unstable and fragile markets and pound going into 2010.

The euro opened the year unspectacularly but remains in the spotlight after a fragile end to 2009. This commenced when Greece was downgraded by credit agency Fitch and then Austria experienced banking problems. Confidence in the euro was heavily shaken and structurally it is starting to look fragile with concerns surrounding Ireland, Portugal and Spain along with Eastern European nations. Within two weeks the euro shed 5% against the USD as investors pulled away from the euro. Ongoing issues could seriously undermine the euro which has been bought into as an alternative to the USD. In 2010 this could be the catalyst for GBP/EUR to push back towards 1.20- this will not be down to a strong pound but a weakening euro. This move could be initiated if the fourth quarter UK GDP data released at the end of January shows an official exit from the recession.

The key for a stronger pound across the markets in 2010 will centre upon the UK’s ability to reduce its fiscal debt which at the moment looks like a severe ball and chain around UK Plc. Coupled with this we will need to see stronger economic data and a growing UK economy in 2010 to bring confidence back into the pound.

Hasta la proxima!

Please feel free to contact me at keith.s@currenciesdirect.com and I will reply to all your questions promptly.

Visit us in our Spanish offices in Costa del Sol, Costa Almeria, S. Costa Blanca and N. Costa Blanca
Telephone: UK 0845 130 8148 • SPAIN 902 310 444 • Email: costadelsol@currenciesdirect.comwww.currenciesdirect.com

2009 has been a tumultuous year in the financial markets and a year to forget for the pound. Sterling started the year at all time lows against the euro and although we had a few sterling rallies, there was never the appetite to resurrect the pound. So where do we stand now against the euro and what will 2010 bring to the table?

The UK pre-budget report came and went and the economists and the politicians digested it in earnest. Naturally there was a heavy focus on the report due to the impending election and also the dire health of the UK economy. Measures included an increase in National Insurance and a public sector freeze on pay limited to 1% leave the ability to reduce the deficit in half within 4 years looking very doubtful. Sterling has not reacted too badly however but going forward I feel the words “deficit”, “credit rating” and “downgrade” will be heard more and more to the detriment of sterling.

For the UK Darling has already confirmed that the deficit will rise before falling so he has bought some time- however the credit agencies may not be convinced that the plans set out will achieve the objective of halving within 4 years. A close eye will be cast over the health of UK finances and sterling will be vulnerable on weaker numbers than forecast; the same is true on GDP forecasts as the budget is reliant on growth of 1-1.5% next year and up to 3.5% the following year. This years GDP forecasts from Darling are looking about to come in about one percent out- such inaccuracies will not be acceptable going into 2010 and 2011. The pound again dropped below the key 1.10 level and looked vulnerable for a fresh push towards parity.

However as sterling started to look vulnerable at the end of 2009; cue problems in the Eurozone. Greece was downgraded by credit agency Fitch and then Austria experienced banking problems. Confidence in the euro has been heavily shaken and structurally it is starting to look fragile with concerns surrounding Ireland, Portugal and Spain along with Eastern European nations. Within two weeks the euro has shed 5% against the USD as investors pull away from the euro and this has allowed the pound to piggy back on these issues back towards 1.13. Ongoing issues could seriously undermine the euro which has been bought into as an alternative to the USD. In 2010 this could be the catalyst for GBP/EUR to push on towards 1.20- this will not be down to a strong pound but a weakening euro. In addition this move could be enforced if the fourth quarter UK GDP data shows an official exit from the recession….

Feliz Navidad a Todos!

Please feel free to contact me at keith.s@currenciesdirect.com and I will reply to all your questions promptly.

Visit us in our Spanish offices in Costa del Sol, Costa Almeria, S. Costa Blanca and N. Costa Blanca
Telephone: UK 0845 130 8148 • SPAIN 902 310 444 • Email costadelsol@currenciesdirect.comwww.currenciesdirect.com

…and the economists and the politicians digested it in earnest. Naturally there was a heavy focus on the report due to the impending election and also the dire health of the UK economy. We saw a one-time 50% tax on bank bonuses that exceed £25,000- this expires on April 5 and does not include contractual agreements…lots of bonus payments to be made on April 6 then! Hard to know the intention here as it is easily sidestepped and avoidable and not likely to raise a jot to reduce the deficit or deter the bonus culture going forward.

From a market perspective other measures including an increase in National Insurance and a public sector freeze on pay limited to 1%, leave the ability to reduce the deficit in half within 4 years looking very doubtful. Sterling has not reacted too badly however but going forward I feel the words “deficit”, “credit rating” and “downgrade” will be heard more and more to the detriment of sterling.

For the UK Darling has already confirmed that the deficit will rise before falling so he has bought some time- however the credit agencies may not be convinced that the plans set out will achieve the objective of halving within 4 years. A close eye will be cast over the health of UK finances and sterling will be vulnerable on weaker numbers than forecast; the same is true on GDP forecasts as the budget is reliant on growth of 1-1.5% next year and up to 3.5% the following year. This years GDP forecasts from Darling are looking about to come in about one percent out- such inaccuracies will not be acceptable going into 2010 and 2011; this may turn out to be the problem of the Conservatives but the credit agencies are unlikely to let new political policies shroud the economic truths.

The euro suffered exactly because of this last week as Fitch downgraded Greece to BBB+. This rattled the markets and sends a clear message that there is a line to draw in spending out of a recession- ultimately like any debt it will come back to haunt you. The implications of a downgrade simply deepen the problem as it increases borrowing costs and default risks- the euro dropped sharply on the news particularly against the USD. There is real concern on other nations within the Eurozone- especially in eastern Europe could face the same fate; this could undermine the euro further going forward.

As we closed out the week the Bank of England decision on December interest rates was announced- this offered absolutely no suprises and hence the currency markets did not react. The big currency cross of the week was EUR/USD which has fallen further to 1.46 from levels above 1.50. This is an important trend an if it continues to the downside it will help the pound to push higher against the euro; on the back of the EUR/USD dip GBP/EUR moved up one cent from 1.10 to 1.11. It will be interesting to see if this trend continues into next week!

Hasta la proxima!

Please feel free to contact me at keith.s@currenciesdirect.com and I will reply to all your questions promptly.

Visit us in our Spanish offices in Costa del Sol, Costa Almeria, S. Costa Blanca and N. Costa Blanca
Telephone: UK 0845 130 8148 • SPAIN 902 310 444 • Email: costadelsol@currenciesdirect.com www.currenciesdirect.com