Euro Pounds Brief Tuesday 9th February 2007

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Friday 09/02/2007

• MPC opt to keep UK rates on hold; inflation under control
• Sterling falls heavily following rate decision
• ECB also keep rates on hold; Trichet very hawkish
• Carry trade returns with yen selling; US accuses Tokyo of manipulation
• Aussie dollar rebounds on carry trade
• Oil nudges above $60 on production outage, export cuts

US Dollar:

Another very dull session in the US markets in a thin data day. The main action came on the Euro-dollar and
cable crosses in response to the respective central banks' decisions to keep rates on hold. The Euro is still
trading above 1.300 however it is struggling to break the range, we’d need to see above 1.3065 for a breakout.
Cable dropped from above 1.97 to almost 1.95 following the decision.
Cable has been slammed in early trade with stops being triggered. A short dip below 1.95 has now recovered.

Pound:

The MPC kept rates on hold yesterday which shouldn’t have come as too much of a shock to the markets
given the implied chances of a hike by the interest rate futures markets. Despite this sterling came under
heavy pressure following the decision, possibly as market players unwound short-covering positions. Sterling’s
plight was not helped by a hawkish press conference from the ECB which prompted further Euro
strength.
This morning the pound starts under pressure following an FT article that inflation is under control in the UK
prompting worries over the future path of interest rates. Today we see the UK trade balance for December.

Euro:

The ECB kept rates on hold today, as expected and Trichet signalled a rise in March using his favourite phrase
‘very vigilant’, as expected. What came as a surprise was Trichet leaving the door open for further hikes
through 2007. Analysts are now split as to whether June will see a hike given that March is now nailed on.
This morning sees a trickle of European manufacturing data; French data has already come out stronger than
expected.

General News:

• The yen came under pressure on the resumption of carry trade activity yesterday, particularly against
the Euro and the Aussie dollar.
• Interestingly the FT carries a story of the US Congress accusing Tokyo of following a weak-yen policy
in order to bolster Japanese imports.
• The Aussie dollar appears to be the principle benefactor from the carry trade activity rebounding to the
2.50 level against the pound.
• Oil traded above $60 on signs of falling crude exports from OPEC and a production outage at an unspecified
US oilfield. We’re still above $60 at $60.02.

Interbank
Updated 9th February
GB POUNDS / US DOLLAR 1.9511
GB POUND / EURO 1.4994
EUR/USD 1.3004
GBP/JPY 236.58
GBP/AUD 2.5036
GBP/NZD 2.8611
GBP/ZAR 13.9492
GBP/CHF 2.4363
GBP/CAD 2.3094
GBP/SGD 2.9887
GBP/THB 66.566
GBP/HKD 15.2364