Euro Pounds Brief 22nd January 2007

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• UK House Prices rise to record
• UK press talks down inflation
• Fed officials bullish on economy; warn on inflation risks
• Yen still at lows after BoJ rate decision
• ECB remains hawkish on policy; wage related inflation risk
• Oil bounces on US cold snap and bargain-hunting

The dollar remained in fairly tight trading ranges over the weekend with very little data to drive the
market. Despite a strong Consumer Sentiment figure on Friday the dollar struggled to hold the postdata
gains. Comments from Fed official Hoenig noted that although rates in the US are enough to control
inflation and allow growth, inflation risks remain on the upside.
The weekend’s press picked up on the carry trade boom since the BoJ’s decision to keep rates on hold
with the wide difference between 0.25% borrowing from Japan and 4.5%+ returns with dollar denominated
investments.

More positive housing data in the UK keeps sterling on the front foot against the majors. Rightmove
noted that the January pay rounds in the City were already having an upwards effect on the housing
market with prices rising 0.5% from December and 13.5% up from January 2006. Despite the interest
rate rises in 2006 the housing market has continued its rapid growth with demand outstripping supply.
Rumours are circulating in the UK markets that the BoE may raise borrowing costs again as soon as
February in an effort to control spiraling inflation.

Another quiet day in the euroland with little data moving prices. A very hawkish report this morning
has helped the euro a touch with reports that the ECB may go as far as 4.75% in an effort to control
growth and curb inflation. This morning German Producer Prices rose 4.4% in the year hinting that
Europe’s sleeping giant may be awaking from its 2006 slumber.

• The yen continued to plumb the depths following the BoJ’s surprising decision to leave rates on
hold last week.
• Banking giants Morgan Stanley and Goldman Sachs both warned that we may be in line for a
shake out in the equity markets after a report that European share prices are more overvalued
now than during the dot-com bubble.
• Oil bounced back sharply as a cold snap hit the US and investors took advantage of the low
prices to snap up bargains. Current price is $53.64.

Interbank
Updated 22nd January
GB POUNDS / US DOLLAR 1.9740
GB POUND / EURO 1.5225
EUR/USD 1.2967
GBP/JPY 239.50
GBP/AUD 2.4993
GBP/NZD 2.8368
GBP/ZAR 14.0630
GBP/CHF 2.4643
GBP/CAD 2.3164
GBP/SGD 3.0341
GBP/THB 69.402
GBP/HKD 15.4000