Euro Pounds Brief Monday 12th February 2007

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Monday 12/02/2007

• UK Inflation report due this week; mixed signals from press
• Sterling continued its slide on Friday following a poor week
• Mixed signals from Fed; willing to hike if necessary
• Continued inflation warnings from ECB officials
• Yen falls as markets shrug off G7 warnings
• Oil drops by 1% on Saudi comments

US Dollar:

The dollar continued to trade up against the pound on Friday however we have seen cable rise in early trade
this morning. The Fed’s Fisher warned that he wouldn’t rule out further rate rises if needed to control inflation,
however this seemed to contrast with raw data which indicates that US growth is strong, inflation is easing
and thoughts that the housing market slump looks to have bottomed out. The early weakness looks to be
due to action against the Canadian dollar and the dollars failure to break below 1.300 against the euro.

Pound:

The UK markets continue to be dominated by interest rate indecision. This week we see the inflation figures
on Tuesday and the Quarterly Inflation report on Wednesday. Most analysts seem to think that the report will
show inflation to be slowing however it will leave the door open for more hikes in 2007. The recent decision to
cut household energy prices may also be mentioned in the report. The weekend press seems to think that we
may be close to the peak in interest rates, the top either being 5.25% or 5.5%. A report by the British Chamber
of Commerce warned that the recent hike in interest rates is to slow UK economic growth; another report
which seems to be talking the market down.
Today we see producer prices for January at 0930 which may give a clue to tomorrow’s inflation data.

Euro:

More hawkish rhetoric from the ECB, this time we have Draghi warning on inflation risks, this time citing oil,
credit and economic growth as the main drivers.
A German research body reported that the VAT hike in January is unlikely to push up consumer inflation or
spending adding to the upward risks on the ECB’s predictions.

General News:

• The yen remained under pressure as markets shrugged off G7 comments which failed to explicitly
mention the yens weakness, as expected by the market. Today Japan celebrates National Foundation
Day.
• The Canadian dollar jumped following a huge gain in employment figures, 88k versus an expected 12k,
added to pressure from oil prices floating around $60.
• New Zealand’s house prices grew in January adding a touch of strength to the kiwi.
• Oil dropped by 1% as Saudi’s oil minister noted that he is satisfied with market conditions. OPEC also
hinted that they may not have to cut or raise output as oil market is in a healthy condition. Elk Hills oil
production will resume in a few days too. Oil trades $59.45.

Interbank
Updated 12th February
GB POUNDS / US DOLLAR 1.9509
GB POUND / EURO 1.4987
EUR/USD 1.3016
GBP/JPY 237.55
GBP/AUD 2.5187
GBP/NZD 2.8431
GBP/ZAR 14.0808
GBP/CHF 2.4348
GBP/CAD 2.2894
GBP/SGD 2.9918
GBP/THB 65.122
GBP/HKD 15.2387