Broker's Notes: Sterling rises against the US dollar

Sterling
Sterling edged up to the day's high against the US dollar on Thursday, extending gains after a much stronger-than-expected reading of UK factory orders. The Confederation of British Industry survey's total order book balance came in at -15 in November from -28 in October, above expectations for a reading of -24. Yesterday data showed the number of Britons claiming unemployment benefit fell by 3,700 in October, the first fall since July and confounding expectations of a rise of 5,000. Separately, minutes from the Nov. 3-4 BoE Monetary Policy Committee meeting showed one member wanting more stimulus, another voting for a rate hike and the remaining seven keeping policy on hold and ready to act in either direction. The minutes reflected an improvement in UK fundamentals from the last meeting as well as stubborn inflation risks, and reinforced expectations policy would remain on hold until the outlook for the economy became clearer.

Oil, US dollar and Gold
Oil broke a four-day decline and gold was set for its second-largest daily rise this month on Thursday as a weaker US dollar lured investors back into commodities, awaiting China's next step to tame inflation. The dollar paused after rallying to seven-week highs as subdued U.S. inflation data reinforced the Federal Reserve's case for quantitative easing, and Asian equities stabilised after an eight-day sell-off. Worries about Ireland's debt crisis, which had weighed on markets, eased somewhat after Dublin agreed to work with a European Union-IMF mission on urgent steps to shore up its shattered banking sector.
Spot gold which usually moves in the opposite direction to the US dollar, rose as much as 1.7 percent to $1,358.65 an ounce, snapping a four-day slide. China's government said on Wednesday it would intervene to control consumer prices if they rise too quickly, a move that will do little by itself to rein in inflation but could foreshadow harsher monetary tightening

Irish Bond
Irish bond yields fell on Thursday as investor confidence grew that a deal would be reached on aid to the country, easing tension across the euro zone periphery and taming demand for German debt. The improving sentiment towards higher-yielding debt was helped by a Spanish auction of long-term bonds which received healthy bids, though yields rose compared to the previous sale. Expectation of a resolution to Ireland's debt crisis saw the premium investors demand to hold Irish government bonds rather than benchmark German debt fall to its lowest in over a week. The Irish/German 10-year bond yield spread was at 555 basis points, 24 bps tighter on the day. Peripheral credit default swap prices fell and other fringe euro zone spreads tightened. A team from the European Commission, the International Monetary Fund and European Central Bank will begin examining what measures may be needed if Dublin decides to seek aid.

Indian Rupee
The Indian rupee on Thursday recouped all its intraday losses and ended stronger, with stocks turning around and the dollar's losses against majors offsetting strong oil importers' demand for the unit. The Indian unit had touched a near two-month low earlier in the day, tracking negative stocks. Indian shares ended up 0.33 percent, after falling as much as 1.3 percent earlier in the day. Upside to rupee may also be limited on tapering foreign fund inflows as offshore investors begin to wind up their investments to avoid piling up risks close to the year-end. Foreign funds have bought shares worth a record $28.5 billion so far in 2010, compared with last year's $17.5 billion, helping the rupee gain 2.3 percent year-to-date. Foreign funds sold $153.04 million of Indian stocks last Friday, the first outflow so far this month, data from the capital markets regulator shows. On Tuesday, they were net sellers worth $3.72 million in equity, while on Monday they bought $116.6 million of Indian shares.

Source: Richcomm Global Services DMCC, Dubai; www.richcommglobal.com