Euro Pounds Brief Friday 23rd March 2007

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Friday 23/03/2007

• Strong retail sales boost sterling
• MPC’s Barker warns on against reactionary policy
• Steve Beckner warns Fed have not dropped additional firming if needed
• Dollar gains support from employment data
• RBA Governor warns of high Aussie inflation
• Oil trades higher on supply worries and soft Fed statement

US Dollar:

The greenback started the day on the back foot following the Fed’s less than hawkish statement on Wednesday
evening. Morning trade was fairly flat with cable holding just under 1.97. US unemployment claims unexpectedly
dipped data released yesterday revealed causing the dollar to strengthen. Claims were half of the
expected headline figure causing cable to drop to mid-1.96 and Euro-dollar to just above 1.33.
This morning the dollar has lost a bit of value but looks quiet. Data releases scheduled for today are housing
market based-existing home sales. These figures may be worth paying more attention to than usual given the
recent worries in the sub-prime mortgage sector.

Pound:

Another good day for sterling yesterday on the back of strong retail sales data. The data was the strongest
seen since January 2005 and heightens calls for the MPC to raise rates in order to restrict inflationary pressures.
The pound took a small hit on MPC member Kate Barker’s comments that there would be no overreaction
to the recent increase in inflation. Speaking in the north of England she posed the rhetorical question ‘do
we need to do anything?’. Despite David Blanchflower calling for an immediate rate cut most of the market
still believe a near-term rate hike is more likely than a cut.
There are no data releases scheduled for the UK today, nether are we expecting any comments from MPC
members so sterling should have a fairly quiet day fundamentally.

Euro:

Not much from the Eurozone yesterday or overnight and even comments from Jean-Claude Trichet failed to
stimulate any major trade. Euro-dollar looks comfortably above 1.33 and against sterling 1.47 looks like support.
There are data releases from individual nations throughout the morning and barring any out of line data
the euro should be fairly quiet also.

General News:

• Overnight comments from the Reserve Bank of Australia governor Malcolm Edey on the inflation outlook
helped to keep the Aussie underpinned. With Australia in its 16th year of expansion and the inflation
outlook stronger than is comfortable the Aussie looks fairly well rooted.
• The South African rand rallied heavily yesterday on expectations of another rate hike taking them past
9%. The yield difference is something investors will undoubtedly be taking advantage of. Traders ill be
looking for the rand to weaken today on profit-taking.
• Oil continued to rally on the back of the unexpected drop in US stocks and the softer Fed statement.
This morning oil is trading $61.66.

Interbank foreign exchange rates:
Updated 23rd March
G BRITISH POUND / US DOLLAR 1.9646
GB POUNDS / EURO 1.4738
EURO / US DOLLAR   1.3328
GB POUND / JAPANESE YEN 231.72
GBP/AUD 2.4374
GBP/NZD 2.7564
GBP/ZAR 14.1197
GBP/CHF 2.3863
GBP/CAD 2.2753
GBP/SGD 2.9802
GBP/THB 63.465
GBP/HKD 15.3516