Euro Pounds Brief Friday 2nd April 2007

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Monday 02/04/2007

• US dollar dips on Middle East tension and China tariffs
• Sterling opens strongly after Sunday Times report
• UK shadow MPC votes to hike rates this week
• ECB’s Trichet warns of upside inflation risks
• Australian retails sales rise above forecast
• Oil eases as Iran situation reaches a stalemate and French strike ends

US Dollar:

A hairy session for the dollar on Friday initially trading up against sterling and the paring gains sharply on
news streams. The US imposed tariffs on Chinese imports heightening concern the levies will reduce the trade
flow with the world’s largest holder of foreign reserves. If China stop buying US Treasuries the US will find it
harder and harder to finance it’s debts. In addition a report from US officers in the Central Command advising
that all US investors in Bahrain pack up and leave over Iran concerns caused the dollar to drop sharply. The
effects were offset amid warnings from Fed Chairman Bernanke that a slowdown in productivity would cause
an increase in inflation.
The dollar is looking soft again this morning trading around 1.97 on cable and Euro-dollar mid-1.33’s.

Pound:

A strong open for the pound this morning on the back of a report from the Sunday Times that rates will go up
to 5.5% this week. The shadow MPC voted 8-1 in favour of a 0.25% hike and this panel has anticipated every
move from the BoE thus far, even the surprise hike in January. Most cite money supply and inflationary risks
as a driver. Most banks however are looking for a no move this week and rates to hit 5.5% in May. With the
rate decision due on Thursday we may see plenty of volatility in the markets. Elsewhere the Sunday Express
reports that the housing market is showing signs of cooling off. HBOS house prices are due at some point
today so we should see whether the newspaper called it correctly.

Euro:

More of the same rhetoric from the ECB, this time President Trichet commenting that the ECB will act in a firm
and timely manner with medium-term risks still on the upside. The comments are very similar to those made
at the March ECB meeting.
Manufacturing data is due from the big three European economies this morning with markets looking for a
small drop in productivity.

General News:

• Overnight the yen traded down a touch on a weak Tankan survey on the back of growing concerns of a
global slowdown.
• Australian retail sales came in slightly higher than expected spurring on an already strong Aussie dollar.
The pickup heightened speculation that the Reserve Bank of Australia will raise rates on 4th April.
• Oil eased over the weekend with a stalemate between Iran and the UK over the 15 captured soldiers
and sailors. In addition a three-week strike at an oil hub by French workers finished yesterday easing
supply concerns. This morning oil trades $65.80.

Interbank foreign exchange rates:
Updated 1st April
G BRITISH POUND / US DOLLAR 1.9708
GB POUNDS / EURO  1.4753
EURO / US DOLLAR    1.3353
GB POUND / JAPANESE YEN 231.57
GBP/AUD 2.4186
GBP/NZD 2.7435
GBP/ZAR 14.3257
GBP/CHF 2.3935
GBP/CAD 2.2723
GBP/SGD 2.9887
GBP/THB 63.8377
GBP/HKD 15.3950

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