Euro Pounds Brief Friday 16th March 2007

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Friday 16/03/2007

• US Dollar comes under pressure following Greenspan comments
• US inflation data due to pick up
• The pound gains some support from MPC’s Sentance
• ECB’s Mersch says rates could rise more than expected
• Soft Asian equity markets keeps US dollar on back foot
• Oil drops on US economy worries

US Dollar:

A poor show from the dollar yesterday despite a pick up in US PPI data. Greenspan again reiterated his concern
over the sub-prime mortgage market noting that if such a large credit liquidity supplier dropped out of
the market that could spell big trouble for the US economy as a whole. This morning cable briefly broke
through 1.94 and the euro-dollar looks to be trying to push through 1.33.
This afternoon we see US CPI data which is due to accelerate to 2.3% from 2.1%. Whether this would change
the Fed’s rate outlook is uncertain however US rates look to be far from going up again. In addition we have
industrial data and Former Fed chairman Greenspan is due to speak later on this evening.

Pound:

Another mixed day for the pound as it came under pressure from a strong euro. The MPC’s Andrew Sentence,
a known interest rate hawk, last night spoke in Edinburgh and he retained his firm stance by commenting on
the ‘clear signs of recovery’ in UK business and the short-term inflation risks from business investment. He
did however note that should energy prices continue to remain relatively low then inflation could undershoot
the 2% target. The comments added some support initially however Asia sold quite heavily overnight forcing
the pound down.
A small pick up this morning has seen the pound rally 30pips against the euro and 35 on the dollar.

Euro:

The euro continues to march on as fears of a small downturn in the US and UK prompt confidence in the Eurozone.
ECB member Yves Mersch yesterday suggested that rates may have to go further than the expected
4% as economic expansion becomes ‘self-sustaining’. He added that the ECB would act in a timely and firm
manner to counter any inflation risks based on incoming data.
One or two snippets of data are due from France and Italy however these are unlikely to be market movers.

General News:

• A subdued day in the Japanese market finally as stock markets ease a touch. Overnight the yen rallied
putting pressure on the pound and dollar in particular. Carry traders are now looking for volatility in
the equity markets before unwinding positions in size.
• Swiss interest rates did indeed go up by 0.25% yesterday which added some strength to the Swissie.
• The South African Rand remains under pressure from the recent flight to safety from emerging market.
• Oil had a very mixed session first trading down on US stock market uncertainties but we’re currently
trading $59.81 looking for $60 on a small rally.

Interbank foreign exchange rates:
Updated 16th March
G BRITISH POUND / US DOLLAR 1.9419
GB POUNDS / EURO 1.4590
EURO / US DOLLAR  1.3301
GB POUND / JAPANESE YEN 226.86
GBP/AUD 2.4499
GBP/NZD 2.7900
GBP/ZAR 14.4159
GBP/CHF 2.3462
GBP/CAD 2.2817
GBP/SGD 2.9668
GBP/THB 63.675
GBP/HKD 15.1616