Euro Pounds Brief Monday 26th March 2007

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Monday 26/03/2007

• US dollar hits back on analysis of Fed statement
• US existing home sales recover
• UK house prices rose to highest in 4 years-Hometrack
• ECB has room to raise rates further according to IMF
• Yen remains under pressure from carry trade, small earthquake
• Oil underpinned by Iranian tension

US Dollar:

A better day for the dollar on Friday with major institutions reassessing their view on the Fed statement. Most
investors now think the statement is less dovish than initially feared revising bets on a near-term US rate cut.
The Fed’s Mishkin noted over the weekend that he saw US core inflation drifting down towards the 2% target
however he did warn against tying too hard to push the figure under 2%. On Friday US existing home sales
picked up adding further strength to the dollar and showing signs that the ailing housing market is not yet
dead. Fed Chairman Bernanke testifies to congress today.
This morning cable is looking at 1.96 for support and is a smidge under 1.33 against the euro.

Pound:

Not much in the way of action for the pound on Friday or in early trade. This morning UK housing figures
came in strong again. This time Hometrack house prices showed an annual growth of 6.7% taking the average
cost of a house to £173,400. The London market led the way with a real shortage in supply being the
driving factor. The housing market has now absorbed three rate rises since August and according to former
policy maker DeAnne Julius the shortage in housing is nothing the Bank of England can control.
The pound is gaining over the Euro quite nicely at the moment with the case strengthening for an April rate
hike however according to David Smith of the Times, May is more likely.

Euro:

The Euro has eased a touch in the last 36 trading hours. Maybe the bullish run has run out of steam a touch.
Over the weekend the International Monetary Fund suggested that the ECB have enough capacity to raise
rates, doing so may not be the most prudent course of action in the near-term. Germany has plans to cut it’s
budget deficit to 0% by 2010. This morning French data surprised a touch to the upside however not enough
to cause a rally back.

General News:

• The yen remained under pressure as carry traders play the usual game and a small quake in the West
of Japan kept traders on their toes. Equity markets have now recovered to their levels seen before the
shake out three weeks ago.
• The commodity currencies are still performing well with the Aussie looking like the strongest. A report
this morning did suggest that any further strengthening of the Aussie would be unsustainable.
• Oil looks fairly strong at the moment with continuing tensions in Iran. Tehran vowed to continue it’s
atomic programme despite UN sanctions and also took 15 British sailors hostage in a territorial water
dispute. Oil is trading $62.65.

Interbank foreign exchange rates:
Updated 26th March
G BRITISH POUND / US DOLLAR 1.9646
GB POUNDS / EURO 1.4784
EURO / US DOLLAR   1.3264
GB POUND / JAPANESE YEN 231.53
GBP/AUD 2.4376
GBP/NZD 2.7560
GBP/ZAR 14.1375
GBP/CHF 2.3928
GBP/CAD 2.2785
GBP/SGD 2.9764
GBP/THB 63.5414
GBP/HKD 15.3077