Euro Pounds Brief Monday 26/02/2007

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Monday 26/02/2007

• Dollar falls following Iran worries and Central Bank diversification
• Sterling pulls back following strong session on Friday
• UK housing figures kick on; council tax set to rise
• German GFK data disappoints
• Commodities squeeze up on continuing Iran worries
• Oil rallies on Iran; forecast storms in the US

US Dollar:

The dollar continued to slide on Friday and in early Asia trade. With worries on all fronts the dollar looks set
for a rocky session today. So far we have had disappointing housing data, the threat posed by Iran’s refusal
to back down over their nuclear programme in the face of building US naval presence, warnings of a possible
recession in 2007 by former Fed chairman Greenspan and a report showing central banks’ willingness to diversify
away from the dollar have all weighed heavy on the greenback pushing it to 2-month lows versus the
euro. The Fed now seem content with the inflation outlook and seem happy to sit back and adopt a wait and
see policy according to various comments from members in the weekend press.

Pound:

Sterling rallied on Friday however trimmed away from highs in Asia trade as technical trading and a degree of
flight to safety hit markets. Cable looks firmly embedded above 1.96 this morning and having tried to break
below 1.49 against the euro has retraced and looks settled at 1.49.
Over the weekend we have seen house price inflation rise (again) which looks to be due to demand in the SE
and London. In addition water bills are set to jump by 16% and council tax is to rise for the tenth successive
year under the Labour government adding to inflationary pressures on UK households.
The Telegraph reports that the UK is facing its greatest terrorist threat since 9/11.

Euro:

German figures disappointed with the IFO dropping on Friday and this morning the GFK confidence data also
showing a fall. The effects of these releases seem to have been limited with heavy euro action in the eurodollar
cross closing in on 1.32 and continuing strength over the struggling yen. No data releases are scheduled
for the rest of the day.

General News:

• This morning analysts have had time to digest and publish their outlook on the Japanese markets with
most research looking to have been in to the massive carry trade market. With the statements released
from the BoJ last week the carry trade trend looks to be here to stay with very little risk of a
sharp unwind with Japanese rates set to rise slowly. Yen still under pressure.
• South African Rand looks strong with gold prices rallying with the ongoing Iranian situation.
• The New Zealand dollar gained some support from NZ business confidence survey published this morning.
Confidence improved to –5.9% from –7.7%.
• Unsurprisingly oil rallied over the weekend with the escalation of the Iran situation and forecast storms
due to hit the US. Oil this morning trades $61.35.

Interbank foreign exchange rates:
Updated 26th February
G BRITISH POUND / US DOLLAR 1.9640
GB POUNDS / EURO 1.4902
EURO / US DOLLAR 1.3175
GB POUND / JAPANESE YEN 237.35
GBP/AUD 2.4791
GBP/NZD 2.7701
GBP/ZAR 13.8800
GBP/CHF 2.4193
GBP/CAD 2.2749
GBP/SGD 3.0020
GBP/THB 65.556
GBP/HKD 15.3357