Euro Pounds Brief 17th January 2007

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Wednesday 17/01/2007

• UK Inflation hits 10-year high
• Interest rates may rise again next month
• German inflation increases to 1.7%
• US manufacturing data falls
• Mixed reports over Japan’s interest rate movements
• Oil continues to fall on Saudi Arabian comments

US Dollar:

The US Empire States Manufacturing Survey fell sharply in January data showed yesterday. However
the data is a survey of the New York Fed district only and was quickly shrugged off by traders. The
dollar managed some gains against major rivals as falling oil prices means good news for US consumers.
US PPI data is due out this afternoon and with inflation increasing globally we mat see an upward
move. After the London close we also have the release of the Fed’s Beige Book which is the Fed’s economic
forecasts.

Pound:

Inflation is the big story in the UK at the moment. Yesterday the CPI figure came in at 3%, well above
the MPC’s 2% target. In addition the RPI which includes housing rose to 4.4%. The last time the RPI hit
4.4% interest rates were above 11% and the housing market was crashing. The MPC have their work
cut out to contain inflation and many economists believe that in order to do so rates may have to go up
next month to 5.5%. The interest rate cut in 2005, opposed by Mervyn King, looks to have been the
catalyst for the ongoing spike in inflation and housing growth.

Euro:

The euro is currently trading at two-and-a-half year lows against the pound and is struggling to make
ground on the greenback on the back of the ECB press conference last week. Despite German inflation
jumping to 1.7% yesterday the ECB is unlikely to deviate from it’s current rate hike cycle which has to
satisfy all members of the union.
European inflation data is due out today so we may see a spike upwards however markets expect no
change at an annualised rate of 1.9%.

General News:

• Mixed reports from Asia have cast a small doubt on Japanese rate hikes this month. With the BoJ
meeting already In full swing we may see an announcement as early as tomorrow.
• New Zealand’s inflation rate softened casting doubt on a rate hike by the RBNZ due nest week.
• Yesterday Saudi Arabia said that OPEC production cuts were working well and there was no need
for an emergency meeting forcing prices to new lows. Current price is $51.28.

Interbank
Updated 17th January
GB POUNDS /US DOLLAR 1.9651
GB POUND / EURO 1.5208
EUR/USD 1.2922
GBP/JPY 236.86
GBP/AUD 2.5074
GBP/NZD 2.8464
GBP/ZAR 14.2838
GBP/CHF 2.4533
GBP/CAD 2.3085
GBP/SGD 3.0237
GBP/THB 70.264
GBP/HKD 15.3343