Euro Pounds Brief Friday 16th January 2007

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Friday 16/02/2007

• Sterling drops on weakest retail sales in 4 years
• Dollar suffers more woe on TICS and Industrial Production data
• US futures still pricing in rate cuts in late 2007
• Yen rally continues in lead up to rate decision
• South Africa opts to hold rates at 9%
• Oil holds as cold weather continues; production disrupted

US Dollar:

The dollar came under further pressure yesterday as the yen rallied against the greenback. Data releases
added to the heavy tones as capital inflows, particularly in US corporate bonds, showed a massive decline in
December highlighting the US’s inability to cover it’s widening trade deficit. In addition Industrial Production
fell by 0.5%. The main culprit was the automobile industry which fell by 6%. These figures suggest that the
industrial sector is in recession! Meanwhile Fed officials stated that there is no current need to move rates.
This afternoon we have PPI data along with housing starts and the Michigan confidence figure.

Pound:

The pound came under heavy pressure in early trade yesterday as Retail Sales data for January showed the
biggest drop in four years. Reflecting previous data the main drops came in clothing and household goods as
consumers clearly are beginning to tighten purse strings in response to the BoE’s decision to raise rates in the
latter part of 2006 and early 2007. Sterling dropped half a cent against both the euro and the dollar following
the release at 0930 and came under further pressure, particularly form the euro, throughout the course of the
afternoon.
There are no data releases in the UK today so markets should pause to take stock of a poor week for sterling.

Euro:

The Euro continued to stay on the front foot yesterday with further warnings of inflationary pressures from
ECB members (yes, again). The currency continues to stay supported by carry trade activity despite the yen
bouncing back in the latter part of this week.
This morning we have the European trade balance data which is expected to narrow for January.

General News:

• Japanese investors continue to stew over the BoJ’s February rate decision as commentators begin to
talk up a hike. Despite this JP Morgan continues to see any yen strength as an opportunity to sell as it
remains very bearish on the yen outlook.
• A long weekend in Asia and the States should ensure some short covering in markets particularly in
late trade. The US celebrates Presidents Day and Asia celebrates the Chinese New Year.
• South Africa’s central bank opted to hold interest rates at 9% yesterday citing the recent effects rate
rises have had on consumers. Governor Mboweni remains concerned over lending levels.
• Oil remained supported in overnight trade as cold weather continued in the US and production cuts at
a facility in Ontario emerged due to a fire. Crude currently trades $58.33.

Interbank foreign exchange rates:
Updated 16th February
G BRITISH POUND / US DOLLAR 1.9523
GB POUNDS / EURO 1.4858
EURO / US DOLLAR 1.3140
GB POUND / JAPANESE YEN 233.06
GBP/AUD 2.4860
GBP/NZD 2.8073
GBP/ZAR 14.0006
GBP/CHF 2.4101
GBP/CAD 2.2728
GBP/SGD 2.9934
GBP/THB 64.600
GBP/HKD 15.2506