Euro Pounds Brief Tuesday 23rd January 2007

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Tuesday 23/01/2007

• Sterling ploughs ahead on UK housing data
• BoE officials continue to warn on inflation
• ECB members continue hawkish tone
• Fed officials keep market on its toes
• UK Industry expected to suffer from rising pound
• Oil continues to hold on cold weather in US

US Dollar:

Yet another tepid day in the US market as the dollar struggles to break the trading range it is stuck in.
This afternoon we have fairly insignificant data releases in the States which shouldn’t provide too many
shocks and with nothing expected through the week we shouldn't see any heavy moves.
Fed officials continue to warn of upside inflation risks however they do seem to be content with current
interest rates. Fed’s Yellen repeated yesterday that the ‘Fed’s rate is well positioned to slow inflation’.
The dollar may gain some ground on the back of these expectations as the market begins to unwind
the long positions put on in expectation of rate cuts this year.

Pound:

Sterling continued its march against the major crosses on the back of the Rightmove survey yesterday
posting a 3-year high against the euro hitting a high of 1.5298. These levels may be tough to break as
the reciprocal cross is sitting on a strong technical resistance level at 0.6540-0.6550. In addition we
have the UK CBI Industrial Survey today which is expected to drop on the back of the strengthening
pound. This evening Mervyn King speaks at the Birmingham Chamber of Commerce and is expected to highlight
inflation worries and the upcoming pay round, which have already been stressed by other MPC
members.

Euro:

More hawkish comments from the ECB stressing, you guessed it, inflation risks. Despite the continued
tone the euro fails to gain any significant ground over anything but the yen. Soft French consumer data
this morning has added bids to the sterling-euro cross.

General News:

• The yen has hit a9-year low against the pound on the back of carry trade with the risk of a February
rate hike in Japan looking less and less likely. With the expanding disparity between the
borrowing cost in Japan and the saving returns in the UK this trend looks set to continue.
• Data showed that the Chinese GDP grew at rate of 10.4% in 2005 with its growing trade surplus
expected to top $200bln this year.
• Oil holds steady after the recent slide on the continuing cold weather in the States and news that
Iran began military manoeuvres and tested short range missiles. Current price $52.81.


Interbank
Updated 23rd January
GB POUNDS / US DOLLAR 1.9825
GB POUND / EURO 1.5273
EUR/USD 1.2980
GBP/JPY 240.62
GBP/AUD 2.5106
GBP/NZD 2.8300
GBP/ZAR 14.1033
GBP/CHF 2.4702
GBP/CAD 2.3444
GBP/SGD 3.0472
GBP/THB 69.385
GBP/HKD 15.4653