Euro Pounds Brief Monday 05 March 2007

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Monday 05/03/2007

• Sterling nosedives on further yen unwinding
• Yen trades sharply higher; dollar main beneficiary
• Swiss franc posts gains as Swiss carry trades unwind
• Euro finds support as ECB expected to raise inflation forecasts
• Asian equities punished on selling; HSBC writes of $11bn bad debt
• Oil sold off in Asia after awful stock markets session

US Dollar:

The dollar trades sharply higher this morning following a very busy Asian session. As predicted the Japanese
carry trade reversal has caused shockwaves in the market. The yen is massively up this morning and the
main beneficiary has been the US dollar. Cable has been sold aggressively this morning by Asian players and
hedge funds worldwide pushing the cross to 3 month lows. Weak US data on Friday failed to stem the rush
back to the dollar.
Last week Greenspan noted that the US could be hit by recession and that started a wave of US equity selling;
it is possible that the US economy is not as rosy as Bernanke would have us believe.

Pound:

Sterling has been flattened this morning with the yen and the swissie trading sharply higher as carry trades
from these countries are unwound. On top of this heavy cable sellers have pushed the cross down and down.
This week the MPC meet to decide on March rates with no move expected. January’s rate hike may have
been a prudent move on the MPC’s behalf. The Times this weekend did see the next move still being upwards
however.
This morning the FTSE is expected to open 100 points lower with HSBC leading the fall with the Sunday Times
reporting that on the day results are announced $11bn will be written off in the US mortgage sector.

Euro:

The euro has, on the whole resisted the battering taken by the pound. Again following weakness against the
yen the euro has stood up against most crosses, trading higher versus the pound. Eurozone inflation forecasts
are expected to be revised upwards this week which will add further weight to the ECB’s vigilant stance.

General News:

• Again the yen is the big player in the FX market. Unwinding of carry trades have increased demand for
the yen driving it higher against all of the majors. Warnings of the massive carry trade positions built
up seem to have bitten and caused the massive sell-off. The Nikkei closed down 3% this morning.
• High yield emerging currencies have seen their currencies lose value on the back of the global sell-off.
One of the big losers has been the South African Rand with continued selling in the face of strong gold
prices.
• Oil traded lower in Asia as investors cashed out of riskier investments such as oil following the flattening
of the Asian equities markets. This morning oil prints $61.02.

Interbank foreign exchange rates:
Updated 5th March
G BRITISH POUND / US DOLLAR 1.9237
GB POUNDS / EURO 1.4634
EURO / US DOLLAR  1.3142
GB POUND / JAPANESE YEN 221.99
GBP/AUD 2.4792
GBP/NZD 2.8254
GBP/ZAR 14.4238
GBP/CHF 2.3330
GBP/CAD 2.2664
GBP/SGD 2.9353
GBP/THB 63.919
GBP/HKD 15.0254