Euro Pounds Brief Wednesday 7th February 2007

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Wednesday 07/02/2007

• Sterling pushes higher on the back of strong retail sales
• Yen continues rally ahead of G7 conference
• ECB’s Weber continues with inflation danger warnings
• New Zealand dollar suffers on carry trade fears
• Australia keeps rates on hold
• Oil holds strength on cold snap

US Dollar:

The dollar struggled to do anything but tread water in trade yesterday with a compete dearth of US data in
the market. The dollar markets were driven solely by global data and sentiment trade; the main movement
coming in the decrease in value against the yen. Ahead of the G7 conference the yen climbed to month highs
against the dollar. The dollar also suffered on the back of the strong UK data.
The Fed’s Yellen noted she was still concerned about inflation risks however she is not convinced that the
housing market has stabilised. The US economy continues to grow at just under trend rate and the US is operating
in the vicinity of full employment.

Pound:

Sterling took heart from the retail sales figure reported yesterday and rallied across the board. After a slow
start the pound gathered momentum and went through 1.52 against the euro and 1.97 against the greenback.
The rally added to worries that the MPC will tomorrow raise borrowing costs by 0.25% to fight inflation;
market consensus currently lies at a 1 in 3 chance however some banks have the probability at more like 50-
50.
This morning we have manufacturing and industrial data which may yet put more pressure on the MPC.

Euro:

A fairly placid session in the euro with very little data. The ECB’s Weber continued with the same old ‘we will
continue to fight inflation’ line with the ECB expected to hike rates in March. No move is expected this week
however President Trichet is expected to signal the move in his press conference by using the signal-word
vigilance.

General News:

• The yen continued to rally aheaed of the G7 conference where members are expected to debate the
recent plummet in the value of the currency.
• The New Zealand dollar took a hammering in trade yesterday on fears that carry trades may be unwound.
With funds and banks alike borrowing money cheaply and investing in high-yield instruments,
any reversal of this could spell disaster for the kiwi.
• The Reserve Bank of Australia last night kept rates on hold following recent disappointing data.
• The FTSE closed at a 6 year high last night following a good performance from BAE shares.
• Oil stayed near highs ahead of today’s US stockpile data which is expected to show a sharp drop following
cold weather in the States. Current trade sees oil at $59.37.

Interbank
Updated 7th February
GBP/USD 1.9713
GBP/EUR 1.5181
EUR/USD 1.2982
GBP/JPY 237.38
GBP/AUD 2.5331
GBP/NZD 2.8844
GBP/ZAR 14.1529
GBP/CHF 2.4452
GBP/CAD 2.3296
GBP/SGD 3.0191
GBP/THB 67.288
GBP/HKD 15.3926