Euro Pounds Brief Monday 19/02/2007

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Monday 19/02/2007

• US dollar falls on weak housing data; thin market for Holiday
• Rightmove survey shows UK house prices curbing
• Fed’s Moskow warns of further tightening if necessary
• Yen pushes on ahead of BoJ rate decision
• New Zealand economic confidence at 17-month high
• Oil holds near $60 on production worries; Iran concerns

US Dollar:

The beleaguered dollar finished the week on the back foot following weak housing data fuelling speculation
that the US may have to trim rates in 2007. This on the back of Bernanke’s dovish speech and an in-line PPI
figure ensured the dollar finished under pressure. Against the yen the dollar is down 2% on the week and
remains well above 1.31 against the euro. In comments over the weekend the Fed’s Moskow warned that
despite cooling data from the housing sector, inflation remains above target and that more policy firming
‘may yet be necessary’. Today the Sates celebrate President’s Day which is a holiday so no data releases.

Pound:

A fairly subdued session in the sterling market on Friday as investors took stock of a very choppy week due to
soft inflation data and mixed messages from BoE Governor Mervyn King. Cable stabilized around the 1.95
level after soft US data and against the euro the pound looked to 1.4850 for support.
This morning Rightmove’s February survey showed the smallest house price gains for February since the survey
began 5 years ago. The figure may be artificially high as house prices rose 9.7% in Westminster due to
the City bonus round. This data could be a sign that the housing market may have reached a peak and that
higher borrowing costs have slowed the rampant growth seen in the UK housing sector.
Over the weekend the Nationals talked down inflation and predicted one more hike in the UK to 5.5%.

Euro:

A quiet session for the euro with US and Asian markets on the sidelines due to holidays. A strong week in the
Euro-zone ensured the currency finished on the front foot. Futures markets are now looking for the ECB to
raise rates to 4% following the expected hike in March to 3.75%. Individual states release data all throughout
the week building to the highlight on Friday of the German IFO.

General News:

• In thin Asian markets the yen continued to look strong ahead of the BoJ’s rate decision due on
Wednesday. Should the BoJ raise rates we should expect to see some of the huge carry trades begin to
unwind which may see a cap ob the recent stock market and asset gains.
•
• With gold prices showing robust growth the commodity currencies (South African Rand and Aussie Dollar)
showed healthy gains.
• New Zealand’s economic confidence rose to 17-month highs pushing the kiwi higher against the majors
• Oil held near $60 on supply concerns from Nigeria and continuing worries that Iran’s refusal to comply
with UN demands may push the state close to war. Oil is sitting at $59.66.