Euro Pounds Brief Wednesday 21st February 2007

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Wednesday 21/02/2007

• Sterling ticks up ahead of BoE minutes; stops triggered
• Fed’s Bies warns of subdued growth and benign housing market
• Japan hikes rates to 0.5%; 8-1 vote
• Swiss Bank’s Roth warns that rates are heading higher
• RBA Governor says rates more likely to rise than fall
• Oil trims on end of US cold snap

US Dollar:

With no data releases to drive the dollar markets, any movement came as a result of range trading and technical
trading. Cable nudged higher yesterday in the run up to the UK minutes which triggered stops as we
approached Friday’s highs. The Fed’s Bies also noted that growth in the US could be better and that the housing
market is still not looking particularly healthy.
Today we should see some more action with CPI data expected to show a small increase. This evening the
minutes of the Fed’s last meeting are released at 1900GMT which should give the dollar some direction.

Pound:

A better day for the pound in trade as sterling ticked up in afternoon trade. Today we have the BoE’s minutes
from their February meeting; markets are looking at a 7-2 split with the arch-hawks Sentence and Besley
expected to have voted for an immediate rate hike. With the Quarterly Inflation Report being mildly more
hawkish than the November report, the risk for a surprise would be on the upside with a possible 6-3/5-4
which would provide some welcome support for sterling. The minutes are due at 0930.
Elsewhere Goldman Sachs are looking for sterling to weaken about 5% v euro in 2007 which would see the
cross down at 1.41 by the end of the year. With this in mind futures markets are still looking for a further rate
hike to 5.5% by June 2007 in order to contain medium-term inflation.

Euro:

Very little in the markets yesterday which in turn led to very little action in the majors. The euro-dollar cross
still sits in the mid-1.31 bracket. Today we see CPI data for individual nations throughout the morning so be
on the lookout for any surprises. French CPI has just been released and has surprised to the downside with
inflation falling faster than expected.

General News:

• The BoJ board voted 8-1 in favour of hiking rates to 0.5% overnight. The result was an initial yen rally
followed by a trough as BoJ assessment of economy is left unchanged. The Japanese market is dominated
by carry trade so this yield alteration may see some repositioning from borrowers.
• Swiss National Bank’s Roth overnight warned that current interest rate levels are not enough to contain
inflation signalling that rates in Switzerland will continue to rise.
• The Governor of the Reserve Bank of Australia noted that in the current climate that interest rates are
‘more likely to rise than fall’ which added some strength to a rallying Aussie dollar.
• Oil prices trimmed as the US came to the end of a cold snap and forecasters looked to a mild March.
Current trade sees oil at $58.85.

Interbank foreign exchange rates:
Updated 19th February
G BRITISH POUND / US DOLLAR 1.9563
GB POUNDS / EURO 1.4873
EURO / US DOLLAR 1.3153
GB POUND / JAPANESE YEN 235.33
GBP/AUD 2.4801
GBP/NZD 2.7787
GBP/ZAR 13.9244
GBP/CHF 2.4169
GBP/CAD 2.2897
GBP/SGD 2.9997
GBP/THB 65.781
GBP/HKD 15.2829