Euro Pounds Brief Tuesday 16th January 2007

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Tuesday 16/01/2007

• UK awaits CPI data; expected high
• UK RICS House Price Index falls to four month low
• UK banks withdraw fixed-rate mortgages
• 80% chance of Japanese rate hike
• New Zealand business confidence jumps
• Oil falls as flowers blossom in New York in January

US Dollar:

A quiet day in the US as markets paused to celebrate Martin Luther King Day. Today traders return to
their desks with little data to drive the market. The Empire Manufacturing Survey is due this afternoon
and is expected to contract from December’s figure of 23.1.
Meanwhile Goldman Sachs expects the Fed to cut rates three times to 4.5% before the end of 2007 as
the US housing slowdown continues.

Pound:

Today the Office of National Statistics releases the much anticipated inflation data for December at
0930. With the BoE rate-setters having access to this data prior to their shock decision to raise rates,
markets are expecting a high figure. If inflation is over 3% Governor King will be obliged to write an
open letter to the Chancellor explaining why the figure is so far from the 2% target. If this is the case
the letter will be released to the press at 1030.
The Royal Institute of Chartered Surveyors (RICS) released the December house price data overnight
and showed that house prices fell to a four month low as rate hikes by the BoE begin to take hold.
RICS economists are looking for the BoE to hike rates once more by the end of 2007.

Euro:

Again a quiet session in the euro market with investors continuing to sell sterling to buy the euro at
these high levels. The cross briefly managed to cross the 1.52 barrier however fell back almost immediately.
Today we have the German ZEW sentiment for January and with recent German strength we could see
a sharp increase.

General News:

• After heavy selling in the Japanese bond markets investors now have an 80% chance of a rate
hike to 0.5%. This would have a minor effect on the economy as the yen would still be a prominent
vehicle for carry trade.
• Many UK banks and building societies withdrew their fixed rate mortgage deals yesterday as the
BoE continue to raise rates.
• Oil fell again yesterday as mild weather continued across the US. Current price is $52.52.

Interbank
Updated 16th January
GB POUNDS / US DOLLAR 1.9669
GB POUND / EURO 1.5176
EUR/USD 1.2961
GBP/JPY 236.72
GBP/AUD 2.5085
GBP/NZD 2.8236
GBP/ZAR 14.1771
GBP/CHF 2.4497
GBP/CAD 2.2979
GBP/SGD 3.0277
GBP/THB 70.510
GBP/HKD 15.3399