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Global Inflation Continues to Spiral Lower

Global Inflation Continues to Spiral Lower….

… provoking further Central Bank monetary easing, next week. Data scheduled to be released today/tomorrow from the German states followed by the figure for the country as a whole, are expected to show a further profound slowdown in perceived inflation. The overall figure is expected to show a fall in the November CPI of 0.2% with HICP at +1.7%. This, coupled with recent weak economic data, MUST push the ECB to cut rates by at least 50 basis points at their 4th December meeting. Given this morning's announcement from the Chinese Central Bank that they are reducing both their interest rates and domestic banks' required reserves, "to ensure enough liquidity in the banking system to aid growth", and following the decision from the Swiss National Bank last week to cut their rates, it looks as though we will see further BIG cuts in Official Interest Rates from all the major economies by Christmas. The one abstainer will be Japan who do not have the scope to cut, a situation that will be mirrored in the US very soon, once their own rates get down to 0.5%.

The one bright point on the economic radar at present is the up-tick in global consumer sentiment with higher than expected figures seen from Germany, US and the UK over the past few days and from France this morning. With consumers' feel-good-factor largely reliant upon stock markets and fuel prices, it is the recent sharp drop in petrol prices that seems to have been the catalyst. Don't hang the flags out just yet.

A further package of US Government / Federal Reserve assistance was announced yesterday afternoon by the soon-to-be-replaced Treasury Secretary, Paulson. He added an additional $800 billion to the already burgeoning sum in the pipeline. this takes to $ 1.7 trillion the total taxpayer funds being used to bail out America, with a further $500 billion of tax cuts in the pipeline. It just shows just how astounded Washington is at the severity of the recession and the speed at which it is affecting the country.

Exchange rates moved consistently with the technicals yesterday with cable shying away from the 1.5500 level overnight to open 1 ½ cents lower this morning. Ahead of tomorrows market closing Thanksgiving holiday in the US, expect to find exchange rates a bit subdued today. There is plenty of data from the US this afternoon but given the current state of thinking, none of it should seriously worry the markets. The European traders will need to fill the gap between 1.5380 and 1.5520 today before they consider which way to push it. I would look for a further move higher over the next few weeks but with interest rate differentials definitely narrowing in the Dollar's favour during the 1st Quarter 2009, expect a modicum of Dollar strength to ensue. Keeping the Dollar under pressure in the short term, if it is correct, is a report in the Times that Middle East Sovereign Wealth Funds are switching out of investments in western markets to focus on domestic considerations.

The contents of this report are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. Currencies Direct cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.

The contents of this report are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. Currencies Direct cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.

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