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For important disclosure information please refer to the back pages

USD: No surprise there then: at the last minute the party leaders in Congress agreed on a

compromise to raise the debt ceiling. This was the only way for the party leaders to convince

their followers that they had done everything possible to defend their own positions. The price

for the political tussle is high. What is at stake is not the question whether the US Treasury will

have to delay the settlement of bills by one or two days. And the question as to whether one of

the rating agencies will downgrade the USAs AAA rating is irrelevant in the end. The toing and

froing in Washington has shattered confidence in the political system in the US: will the USCongress in its current position be able to draw up an economically sensible yet sustainable

fiscal policy? Electorate and investors are wondering. The disastrous GDP data published on

Friday illustrates: there is only a very fine line between two unpleasant alternatives:

proliferation of the deficit which would unavoidably lead to fiscal disaster and

throttling the economy due to fiscal savings at a time when the US economy would need new

momentum.

It seems increasingly unlikely that the US Congress will walk this fine line in its current position.

The conclusion is obvious: there are few reasons for a significant recovery of the dollar.

Short term the other issue is that not all risks have been overcome. Disagreeing minorities

(particularly among the Republicans) might still derail the compromise. News along these lines

could keep the FX markets on their toes from this afternoon (European time).

On the data side the PMI for the manufacturing sector is due for publication today. The remain-

ing dollar optimists might have been able to dismiss Fridays GDP data claiming that they con-

stituted a glance in the rear-view mirror while the worst was now over on the economic side.

Without doubt the ISM constitutes a forward glance. Once the question of the debt ceiling is off

the agenda the FX markets are likely to remember the US monetary policy. In particular against

the background of disappointing economic data that is another argument against a rapid dollar

recovery.

GBP: Fridays money supply data for June was disappointing and the slight gain in monthly

mortgage approvals was hardly convincing as well in particular, as both indicators remain on

extremely low levels. All in all, the recovery in broad UK economic activity seems to be a slug-

gish one. Later this morning we will receive PMI manufacturing data for July where expecta-tions fit into the picture with a barely expansionary 51 print.

Levels to watch in EUR-GBP are the 200 day moving average at 0.8665 and the confluence of

the 21 and 55 day moving average around 0.8840. In cable, the next level to the downside is

the 21 day moving average around 1.6210.

CAD: GDP for May in Canada was a complete disappointment as it fell by 0.3% mom and only

recorded a 2.2% rise yoy. As a result not even lower-than-expected US Q2 GDP and the nota-

ble downward correction of the previous quarter was able to support CAD, therefore the loonie

recorded heavy losses against the USD. This week the USD will continue to be the driving

force in USD-CAD. Only the Canadian labour market report for July due on Friday might re-

focus attention on local economic data. Otherwise USD-CAD will be at the mercy of the USD

development. To the downside the 0.9400-20 area in USD-CAD seems to be cast in stoneanyway.

Daily Currency Briefing

Agreement but no happy end

G10 Currencies

August 1, 2011

Ulrich Leuchtmann+49 69 136 [email protected]

Peter Kinsella+44 20 7475 [email protected]

Antje Praefcke+49 69 136 [email protected]

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1 August 20112

SEK: The Swedish economy remains the golden boy. At 1.0% qoq and 5.3% yoy Q2 GDP

clearly exceeded market expectations. Even though SEK can always appreciate quickly follow-

ing the publication of good economic data as was the case on Friday general market senti-

ment maintains the upper hand in EUR-SEK. That is likely to remain the case so that the Swed-

ish PMI for July will only cause a brief blip in the SEK this morning.

CHF: More historic highs in the franc on Friday and medium-term still no change in sight, al-

though market sentiment got a lift overnight thanks to the agreement on the US debt ceiling,triggering sharp short-term losses in the CHF. To make matters worse US Q2 GDP data disap-

pointed notably on the downside while Q1 data was revised massively downwards so that fears

about a recession and concerns about QE3 are now making the rounds again and should con-

tinue for the time being. As the only safe haven the Swiss franc is getting all the flak without

any chance of a relief in the near future, apart from some short-term blips like the move seen

overnight. In our view EUR-CHF might be aiming for the 1.10 mark and the 0.75 mark in USD-

CHF should market uncertainty remain high.

AUD: Tomorrow morning the RBA will decide on key rates. The inflation rate in Australia rose

more notably than expected in Q2 to an impressive 3.6%. The core rate came in at 2.7% thus

reaching the upper end of the central banks target corridor. It therefore remains quite likely that

the RBA will resume the rate rise cycle before the end of the year. After all RBA Governor

Glenn Stevens as well as the minutes of the last rate meeting had underlined that Q2 inflationdata would be decisive for the future path of interest rates. This time it is however still too early

for a rate rise. The statement is likely to refer to inflationary pressure and the strong AUD. De-

pending on the degree of hawkishness the AUD will be able to rise to a bigger or lesser extent.

In any case, possible setbacks in the AUD will be used as buying opportunities, since the AUD

will remain an attractive currency for the time being.

EMEA: Today is PMI day in five EMEA countries. Even if local factors are taking a back seaton the FX markets in the current environment it will be of interest whether the economic weak-

ness in Q2 has affected sentiment amongst purchase managers in Russia, Poland, Hungary,

the Czech Republic and Turkey in July. Hungary and Turkey recorded an uptrend recently

while the index for Russia stagnated over the past two months. In Poland and the Czech Re-

public the PMI fell over the same period but nonetheless remains the highest in the region.

TRY: The glowing image which the Turkish central bank (CBRT) painted on Thursday at the

presentation of its new inflation report evaporated on Friday. With a large minus of USD 10.2bn

the Turkish trade balance recorded a record low. That means that there is renewed trouble

brewing regarding the development of the Turkish trade balance one of the main factors why

the lira is in a downward trend. The continued high credit growth suggests that it is excessive

lending behind the economy overheating and thus behind the strong rise in import demand. We

therefore consider the central banks rate cut rhetoric to be premature. On the contrary: con-sumer prices for July on Wednesday might illustrate that a tightening of monetary policy might

be required before year end to control price pressure.

HUF: On Friday the CHF-HUF exchange rate reached a new all-time high at 238.94 and there-

fore remains a major concern for Hungarian debtors with foreign-currency denominated loans.

The fact that the annualised 1-month volatilities in CHF-HUF have more than doubled com-

pared with the low in March illustrates how explosive the mix of safe haven Swiss franc and

high risk currency forint is. An agreement on the US debt ceiling could cause a trend reversal

though.

Emerging Market Currencies



Antje Praefcke

+49 69 136 [email protected]

Carolin Hecht+49 69 136 [email protected]



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1 August 20113

Todays Events

Time Region Indicator Period ActualOur

ForecastSurvey Last Direction Cross

07:30 SEK SwedbankPMISurvey Jul 50,1 52,0 52,9

08:00 NOK PuchasingManagerIndex Jul 55,5 56,1

08:55 GER PMI(Markit) Aug 52,1 52,1

09:00 EUR PMI(Markit) Aug 50,4 50,4 50,4

09:30 GBP PMI(Markit) Jul 51,0 51,0 51,3

10:00 ZAR InvestecPMI Jul 51,9 53,915:00 USA ISMmanufacturing Jul 55,5 54,5 55,3

pricespaid Jul 64,0 68,0

Important Market Data

FX EUR-USD EUR-JPY EUR-GBP EUR-CHF EUR-CAD $ index

Current 1,4398 111,69 0,8754 1,1422 1,3708 73,84

Change (%) +0,63 +0,29 -0,07 -0,64 +0,95 -0,51

Last trading day's high 1,4413 111,56 0,8785 1,1497 1,3773 74,51

Last trading day's low 1,4230 110,40 0,8734 1,1299 1,3527 73,72

FX EUR-SEK EUR-NOK EUR-DKK EUR-HUF EUR-CZK EUR-PLN

Current 9,0176 7,7331 7,4504 268,26 24,204 3,9938

Change (%) -0,44 -0,11 +0,02 -0,19 +0,10 -0,39



FX EUR-AUD EUR-NZD EUR-BRL EUR-MXN EUR-TRY EUR-ZAR

Current 1,3030 1,6316 2,2303 16,7948 2,4193 9,5960

Change (%) +0,28 -0,63 -0,39 +0,39 +0,91 -0,03



FX EUR-RUB EUR-RON EUR-CNY EUR-SGD EUR-KRW EUR-THB

Current 39,7220 4,2540 9,2634 1,7288 1510,6384 42,8197

Change (%) +0,64 +0,24 +0,49 +0,49 +0,40 +0,72



Forwards / Options Fwd 3M Fwd 6M Fwd 12M Vol 1M Vol 3M Vol 12M

EUR-USD -34,7300 -68,7900 -131,2300 13,14 12,90 13,303M Money Market EURIBOR $ LIBOR LIBOR LIBOR CHF LIBOR CAD LIBOR

Rate (%) 1,61 0,26 0,20 0,83 0,18 1,18

Bonds / Bond Futures 10Y Bund 10Y T-Note 10Y JGB 10Y Gilt Bund Future

10Y T-Note

Future

Yield (%), Price 2,54 2,84 1,08 2,86 130,36 125,42

Equity Indices EuroStoxx50 DAX Dow Jones S&P 500 Nikkei 225 FTSE 100

Closing 2670,37 7158,77 12143,24 1292,28 10017,75 5815,19

Change -22,39 -31,29 -96,87 -8,39 +184,72 -58,02

Change (%) -0,83 -0,44 -0,79 -0,65 +1,88 -0,99

Oil / Prec.Metals Oil, Brent Oil, Nymex Gold Silver Palladium Platinum

$ per unit 117,76 96,88 1614,05 39,52 839,50 1795,75

Industrial Metals Aluminium Lead Copper Nickel Zinc Tin

$ per ton 2582,0 2613,5 9731,0 24500,0 2470,0 28150,0

Sources: Bloomberg L.P., European Banking Federation, British Bankers Association,Dow Jones, Xetra, S&P, TSE, LSE, LME.

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