Euro Pounds Brief Wednesday 24th January 2007

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Wednesday 24/01/2007

• Sterling sharply down after BoE’s King speech
• King hints at end to rate rise
• Yesterday pound hits 14-year high versus the dollar
• BoE January minutes due today
• The euro advances on Japan rate differential
• Oil jumps on cold weather and US stockpile rumours

US Dollar:

The dollar came under heavy selling pressure yesterday morning following the release of the UK CBI
Survey. Cable soared following the break of the key 1.9875 barrier and leapt up to a 14-year high of
1.9916. This was seen as a very heavy move based on data from one side of the currency pairing and
pulled sharply back in the afternoon before settling just above 1.98. The Euro also posted gains on the
dollar following the pound-based movement and clawed its way above the 1.30 mark for the first time
in two weeks. No US data this afternoon so a fairly benign session ahead.

Pound:

A mixed 24 hours for the pound as Mervyn King pours cold water on the 6% predictors in his speech to
the Chamber of Commerce last night; this coming on the back of a 14-year high against the dollar and
coming within a whisker of 1.53 on the Euro. King took the opportunity to hint at a possible end to the
rate hike cycle in the UK with the veiled clue that he expected inflation to fall ‘possibly quite sharply’ in
the second half of this year. He did leave the possibility of a spring rate rise open however markets
have taken this as a less than hawkish speech. With the BoE releasing the minutes of the January
meeting at 0930 and expectations of a 7-2 split on the panel, the pound could be in for a choppy session.
The initial spark in yesterdays sterling rally was the CBI data which showed a sharp rise in prices paid.

Euro:

Yesterday saw a Euro rally against the dollar and overnight a pick up against the pound. With markets
pricing in 4% interest rates by June 2007. The Euro set an all time high against the yen as the carry
trade phenomenon continued with investors borrowing from Tokyo and investing in the rallying Euro
interest rates.

General News:

• The Aussie dollar was sold aggressively overnight as inflation data came in weaker than expected.
The dollar hit 2.5325 against sterling immediately following the data release.
• The World Economic Forum starts in Switzerland today so we should be seeing plenty of press
releases from finance ministers across the globe.
• The Telegraph reports that N.Korea is helping Iran to build a nuclear weapon testing facility.
• Oil rallied sharply yesterday following rumours that the US are set to increase oil stocks. Current
oil price is $54.93 following a rally past $55 yesterday.


Interbank
Updated 24th January
GB POUNDS /US DOLLAR 1.9731
GB POUND / EURO 1.5176
EUR/USD 1.3000
GBP/JPY 238.59
GBP/AUD 2.5217
GBP/NZD 2.8351
GBP/ZAR 14.1012
GBP/CHF 2.4552
GBP/CAD 2.3297
GBP/SGD 3.0291
GBP/THB 69.466
GBP/HKD 15.3944