Euro Pounds Brief Wednesday 10 January 2007

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Wednesday 10/01/2007

• US dollar benefits from weakening oil price
• UK consumer confidence falls to two year low
• ECB’s Trichet may surprise investors
• Japanese rate hike fears subside
• US housing slowdown may spread to Europe/UK
• Oil falls to 18-month lows on mild weather

US Dollar:

The dollar clawed back some ground against the pound and the euro yesterday gaining strength from
falling oil prices and hawkish sentiment from the Fed. Fed members noted that outside of the housing
market, the economy is solid however there is room for a slowdown. Inflation however remains a concern.
In addition the falling oil prices will help consumer confidence which may prevent a rate cut in
the near future.
Today the trade balance is expected at 1330 with the gap expected to widen to $60bn from $58.9bn.

Pound:

UK consumer confidence fell to a 2-year low following the recent rate hikes, a survey by Nationwide
showed. With the BoE raising rates to their highest level since 2001 the increase in mortgage repayments
is making it harder and harder for consumers to pay back a record level of debt.
The UK trade balance is due today at 0930 and is expected to widen.

Euro:

Rumours have been circulating in the market that ECB’s President Trichet may use tomorrow’s press
conference to signal a February rate hike which would go against market sentiment that European rates
will go up in March.
This morning Asian trade saw the euro-dollar hit lows as stops placed ahead of the ECB rate decision
tomorrow were triggered. Despite the hawkish sentiment on the ECB GBP-EUR is still well above 1.49.

General News:

• A story on the Dow-Jones news network reported that the US housing slowdown may prompt a
slowdown in Europe and the UK. With UK house prices racing due to a record City bonus round,
a slowdown could be on the cards.
• Thailand’s government yesterday approved new investor rules limiting foreign ownership in some
companies which added negative sentiment to the Thai Baht.
• A rate hike in Japan this month is looking less likely following dovish overtones from the BoJ.
• Oil hit 18 month lows on mild weather concerns. OPEC have called an emergency meeting to try
and halt the freefall after oil dropped below $54. The most likely outcome is that production will
be cut. Markets will be looking to US stockpile data today. Current price is $55.34.


Interbank
Updated 10th January
GB POUNDS / US DOLLAR 1.9411
GB POUND / EURO 1.4939
EUR/USD 1.2992
GBP/JPY 231.55
GBP/AUD 2.4859
GBP/NZD 2.8095
GBP/ZAR 14.2556
GBP/CHF 2.4118
GBP/CAD 2.2808
GBP/SGD 2.9818
GBP/THB 69.809
GBP/HKD 15.1299