Euro Pounds Brief Friday 23/02/2007

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Friday 23/02/2007

• Sterling strengthens on relief rally; continued inflation warnings
• Rumours in the US over possible defence status change
• Dollar suffers as risk rises that US consider military action in Iran
• German IFO due at 0900 GMT
• Pakistan tests nuclear-capable missile
• Oil creeps up on falling inventories; geo-political events

US Dollar:

With rumours in the markets that the US had raised its homeland defence status and a rising risk that the US
may consider military action against Iran if it fails to suspend all nuclear activities, the dollar fell in afternoon
trade against sterling.
Jobless claims in the US did fall however this failed to help the dollar in cable trade. With no data due from
the US today we should see consolidation and possibly some short-covering ahead of a weekend which will no
doubt be dominated by posturing from Iran and ongoing talks about their Uranium enrichment programme.

Pound:

A much needed good day for sterling yesterday at the end of a tough week. With BoE board member Andrew
Sentence continuing with his inflation warnings and the price of an average loaf of bread rising above £1 for
the first time the pound managed to claw bag some of the losses seen earlier in the week. Sentence also
noted that he had seen tentative signs that the three rate rises have had an impact on the booming UK housing
market.
Today we see the preliminary 4Q GDP figures which are due to come in unchanged.

Euro:

Not a great day in the euro market as the currency took a back seat with most action coming in the UK, US
and Japanese markets. There remains bullish undertones in the currency with the euro/yen trading near all
time highs and the euro/dollar finding support at 1.31 on the US security worries.
This morning at 0900 Germany releases the much anticipated IFO figure which is expected slightly softer.

General News:

• The yen still continues to plumb the depths on the back of the BoJ’s announcement that rates will
move slowly. This caused a wave of yen selling as carry trades again became the talk of the market.
The only risk to the carry now remains the credit market with warnings harking back to the default of
Russian debt which caused shockwaves in the markets 6 years ago.
• With a strong gold market the South African Rand continues to look strong with buyers pumping into
Rand and the temptation for carry trades to benefit from the high yields.
• Pakistan reportedly tested a nuclear-capable surface-to-surface missile early today. With Iran and
Pakistan adding uncertainty to markets the stock indices may suffer today.
• Oil traded higher on geo-political concerns and lower US inventories. Now trading $61.09.

Interbank foreign exchange rates:
Updated 23rd February
G BRITISH POUND / US DOLLAR 1.9582
GB POUNDS / EURO 1.4917
EURO / US DOLLAR 1.3124
GB POUND / JAPANESE YEN 237.61
GBP/AUD 2.4800
GBP/NZD 2.7747
GBP/ZAR 13.8338
GBP/CHF 2.4258
GBP/CAD 2.2736
GBP/SGD 3.0020
GBP/THB 65.810
GBP/HKD 15.2928