Euro Pounds Brief Tuesday Tuesday 6th February 2007

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Tuesday 06/02/2007

• UK Retail Sales for January highest in 3 years according to BRC
• MPC decision under the spotlight
• Euro still on back foot following dovish comments
• US mortgage defaults hit 10 year high
• Uncertainty over Aussie dollar outlook
• Oil touches $60 on cold weather and stock fears

US Dollar:

With a soft landing looking more and more likely in the US Morgan Stanley have changed their US outlook for
2207 with analysts not expecting any easing in monetary policy until 2008. This contrasts hugely with the
sharp drop of the dollar in the latter part of 2006. Could this mean the dollar is slightly under valued at these
levels?
A survey overnight showed that subprime loan defaults hit a 10 year high. Yesterday the non-manufacturing
ISM survey came in fairly benign having a limited effect on cable. A very quiet day in store with the highlight
of the day being a speech from Fed Chairman Ben Bernanke.

Pound:

News of the day so far is that Retails Sales in the UK for January are the strongest in 3 years according to the
British retail Consortium (BRC). The survey showed that a strong December had followed through into the
new year with healthy foods topping shopping lists. The biggest drop was in home furnishings as jitters enter
the housing market following the recent rate hikes by the MPC. The survey is set to put further pressure on
the MPC to raise rates again this week on the back of strong UK data. Press articles are full of comments that
the City may not be pricing in the BoE reaction this month; with inflation running at 1% above target and the
housing market still booming, another 0.25% this month may not be out of the question.

Euro:

The euro still appears to be under fire following the dovish comments from ECB sources on Friday. Both the
pound and the dollar posted gains on the currency with speculation that following a move in March the ECB
may pause to take stock of the European economy.
More news from Germany today; this time manufacturing data. With recent German strength this data may
halt the slide of the euro.

General News:

• The recent plunge in Australian inflation has eased market concerns over a RBA near-term rate hike
which has caused the recent slide in the dollar. With the rate meeting on Wednesday, no move is expected
however we may see more hawkishness than expected.
• In Canada we seem to have hit some stability following the pullback of the US dollar. One report hints
that we may have reached fair value on the C$ and that we’re in for a period of sideways trading.
• Australian retails sales were lower than expected which added to the pressure on the Aussie dollar.
• Oil neared $60 as cold weather across the US looks set to deplete US stocks. Now $59.19.

Interbank
Updated 6th February
GB POUNDS / US DOLLAR 1.9629
GB POUND / EURO 1.5180
EUR/USD 1.2929
GBP/JPY 236.25
GBP/AUD 2.5305
GBP/NZD 2.8700
GBP/ZAR 14.1266
GBP/CHF 2.4485
GBP/CAD 2.3212
GBP/SGD 3.0108
GBP/THB 66.908
GBP/HKD 15.3246