Euro Pounds Brief Wednesday 14/02/2007

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Wednesday 14/02/2007

• Sterling hammered as inflation eases; report due today
• UK rates seen nearing peak as CPI drop hits 5-year low
• Dollar trims ahead of Bernanke testimony
• Strong European figures, hawkish ECB push euro higher
• New Zealand dollar posts gains on Finance Minister comments
• Oil trades range bound, spike on US storm warnings

US Dollar:

In a fairly light data session traders removed some dollar value ahead of today’s testimony by Fed Chairman
Bernanke to the Senate. Trade data also disappointed yesterday with the trade deficit widening which may
have serious implications on GDP growth. With Bernanke speaking at 1500GMT the dollar should take a back
seat and may lose some value in the run up as investors hedge/reverse positions. The dollar suffered against
a robust euro yesterday losing almost a cent on the day following strong European data and a soft dollar. The
euro-dollar cross is currently well above that all-important 1.30 level.

Pound:

Headline inflation dropped from 3.0% to 2.7% yesterday causing an aggressive sell-off in the sterling market
and prompting speculation that we may have reached a peak in UK interest rates for the time being. The
main fall came in fuel prices and clothing which may explain the strong January retail sales figures. It looks
like households are now feeling the pinch from the recent BoE hikes and are scaling back spending. Markets
do still have one more move to 5.5% priced in to the markets for the first half of 2007 however today’s Quarterly
Inflation report should give us more of a clue as to the future path of interest rates.
With only employment data due for release today the Inflation Report at 1030 should dominate events.

Euro:

A positive day in the Euro-markets yesterday as GDP came in stronger than expected from the major European
economies. Growth, especially in Germany, looked robust as rate hikes and VAT hikes failed to temper
consumers prompting hawkish comments from the ECB. Axel Weber still sees risk to the upside for inflation
citing credit growth and wage demands as a driver for rising prices. He seems to be worried about the second
round effects of the German VAT hike. No European data is due today so traders will be watching the
wires for any comments from the ECB.

General News:

• The New Zealand dollar posted strong gains against a soft dollar as the Finance Minister said that
monetary policy remains tight following a strong rebound in food prices.
• The Canadian dollar again posted gains this time on trade data and gains over the pound following the
weak UK inflation data.
• The Aussie dollar continued to march on gains over the dollar and strong news from New Zealand
breaking below the 2.50 level against the pound.
• Oil continued to trade range-bound just under $60 with a small spike following warnings of a major
storm in the US. With OPEC not expected to adjust output, Texas-gold traders will be looking for geopolitical
events to drive the market. This morning oil trades $58.92.

Interbank foreign exchange rates:
Updated 13th February
GB POUND / US DOLLAR 1.9500
GB POUNDS / EURO 1.4913
EUR/USD 1.3077
GBP/JPY 236.22
GBP/AUD 2.4939
GBP/NZD 2.8188
GBP/ZAR 14.0811
GBP/CHF 2.4249
GBP/CAD 2.2745
GBP/SGD 2.9978
GBP/THB 65.077
GBP/HKD 15.2364