Euro Pounds Brief Tuesday 3rd April 2007

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Tuesday 03/04/2007

• Sterling continues rally on shadow MPC vote
• UK spenders turn to remortgaging to finance spending
• Dollar weakness again on disappointing ISM data
• Slight dip in Eurozone PPI adds to weakness
• Australian dollar hits 10-year high
• Oil stable as Iran look to diplomatic channels to resolve crisis

US Dollar:

The dollar opened poorly and continued to drift yesterday on the back of cable weakness and poor data flows.
The Institute of Supply Management survey disappointed yesterday coming in lower than expected however
the prices paid component was very high which should add further worries to the Fed’s inflation outlook. The
Fed’s Poole failed to support markets with his comment that there are no rate cuts on the horizon given current
inflation levels. In addition US sub-prime lender New Star filed for chapter 11 bankruptcy protection
causing further ripples in an already choppy sub-prime pond.
Minor housing data is due from the States this afternoon. This morning cable has opened poorly for the dollar
again with prices trying to push through 1.98.

Pound:

Another strong performance from the pound yesterday and this morning all on the back of expectations that
the MPC may move rates sooner than expected. Sterling rallied despite lower than expected manufacturing
data however rising prices may prompt the MPC to act early. This morning a survey has shown that UK consumers
are now eating in to savings to fund their spending. Savings are now shrinking for the first time since
the 1980’s. In addition rising house prices are the reason behind remortgaging in order to fund spending.
Despite these worries the pound has opened strongly again pushing 1.98 on cable and well over 1.48 on euro.

Euro:

The Euro is still looking firm despite losing almost a cent against the pound yesterday. Euro-dollar is trading
higher and the Euro is back at multi-month highs against the yen. Poor data yesterday didn’t help the euros'
cause against the rallying pound.
The data still doesn’t detract from the fact that the ECB will move rates at least once more which is underpinning
the currency. Italian GDP will be the focus of the day.

General News:

• More weakness in Japan as worries of a US slowdown continue to haunt the market. With no rate
moves in Japan in the near future the yen will have to work hard to gain ground.
• The Aussie dollar hit 10-year highs against the US dollar yesterday as retail banks step up rates ahead
of an expected RBA move in the very near future.
• Oil traded sideways as fears of an military resolution to the Iran crisis recede. Today Iran are holding a
press conference and are expected to aim for a diplomatic resolution to the current hostage situation.
This morning oil is trading $65.64
 

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