Euro Pounds Brief Thurday 15/02/2007

For Today's exchange rates Click the following link:
 

Euro Pounds Home

Thursday 15/02/2007

• US dollar suffers on Bernanke testimony
• UK Inflation Report more hawkish than expected
• Sterling gains on BoE report; King mentions rate rises
• ECB sees inflation ‘contained’ with upside risks
• Japanese GDP data surprises on the upside
• Oil falls after US inventories data

US Dollar:

The dollar weakened after Fed Chairman Bernanke’s testimony to the Senate yesterday as he highlights
weakening inflationary pressures and revises the US growth forecast down to 2.5-3%. This coupled with a
weak housing market and weakening employment profile sent cable up by over a cent on the day. With the
US economy set for a soft landing most analysts are looking for the Fed to keep rates on hold through 2007
should the economy hit forecasts. Other Fed officials see things differently however with comments intimating
that members still see upside inflationary pressures.

Pound:

The pound rallied yesterday following two lackluster sessions on a more hawkish than expected BoE Quarterly
Inflation Report. The BoE noted that in the near term inflation risks are to the downside however in the me-
dium term, should rates stay at 5.25%, inflation will overshoot the 2% target set by the MPC. This news cou-
pled with Governor King’s usual off–the-wall comments left analysts in no doubt that rates would be going up
to 5.5% by mid-2007. Commenting on inflation and the near term outlook King said ‘I do not think it is a time
for counting chickens’.
In a separate release RICS housing data dropped sharply from 37 to 28 for Jan showing a surprising slow-
down in the UK housing market. Markets may be beginning to feel the pinch from interest rate increases.

Euro:

The euro-dollar cross was the main beneficiary of the dollar softness yesterday breaking the 1.31 level. With
ECB members continuing to warn of inflationary pressures and a narrowing yield gap the euro continues to
push higher. Even sterling failed to make significant ground over the robust euro. Overnight ECB member
Lorenzo Bini-Smaghi noted that the ECB sees inflation as ‘contained’, however warned of upside risks on Ger-
man VAT hikes and instability in the oil markets.

General News:

• Overnight Japanese GDP data showed a sharp increase increasing pressure on the BoJ to hike rates at
next weeks MPC meeting. Following Fukui’s comments that strong data would be needed for a hike,
this release would seem sufficient to warrant a move to 0.5%.
• On Wall Street the Dow Jones Index closed at a record high following Bernanke’s comments. The DJI
finished the day up 87.01 at 12,741.86
• The Swiss ZEW figure is released today at 1000GMT which should provide some action in the USD-
Swissie cross.
• Oil traded down yesterday following strong US inventory data. Crude was down over a dollar on the
day and current trade sees oil at $57.85.