*Last Updated January 16, 2006, 4:25 am

Daily report by CMC Markets

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FOREX ANALYSIS

Raft of inflation data in coming days pushes monetary policy into focus

January 16th - With key items of inflation data due for release from both the US and Europe in the coming days, likely interest rate differentials as we progress through the first quarter of 2006 are set to dominate traders’ thoughts in the near term. There’s little doubt as to the future direction of rates at both the FOMC and Bank of England’s MPC, but the precise question is one of timing and expectations are certainly building that the Fed’s meeting on January 31st could mark the last move in the cycle of tighter monetary policy. US CPI for December is scheduled for release on Wednesday and although a robust figure is forecast for the year as a whole, month on month expectations are for only marginal growth to be seen and the threat of the economy stalling could start to result in further downside pressure on the greenback. Cable is also likely to remain in focus as UK PPI data is one of the few notable economic items due for release today, followed by CPI and unemployment stats on Tuesday. Expectations here are building that the Bank of England will be looking to cut interest rates by another 25 basis points as soon as next month, but obviously any suggestion of inflationary pressures could be sufficient to defer this action until later in the year. In summary – look for some volatility in currency markets this week as traders assimilate inflation data with the next likely moves in monetary policy…

Stuart Scrase and Enis Mehmet



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