Euro Pounds Brief Tuesday 27/02/2007

For Today's exchange rates Click the following link:
 

Euro Pounds Home

Tuesday 27/02/2007

• Dollar drops to 2-month lows against the euro
• ECB’s Quaden retains hawkish tone
• BoE’s Blanchflower talks down sterling and interest rates
• Japan draws strength from European commentary
• US housing data due this afternoon
• Oil continues to draw strength from Middle East unrest

US Dollar:

Another soft session for the dollar, particularly against the euro as the cross reached 2-month lows. Analysts
had differing views as to the reasoning behind the pullback. Most attribute the move to continuing unrest in
the Middle East and the potential responses of a US led strike. Among other possibilities are the risks of defaults
on high-risk sub-prime mortgages and the upcoming data which may confirm Greenspan’s fears of a
possible recession in the housing market.
This afternoon we see amongst other things, existing home sales which, going on recent data, may provide
another stick to beat the dollar with.

Pound:

A fairly subdued day in the UK markets with most action seen in the UK government bond market. Overnight
the BoE’s most dovish member David Blanchflower noted in a speech at the University of Sterling that he saw
inflation back on target by late spring or early summer with expectations well anchored. He sees more slack
in the labour market than other MPC members and that pay deals have turned out lower than expected. In
addition Blanchflower mentioned that the exchange rate had added to pressures on the MPC to hike rates. He
is a known dove and has opposed all three hikes since August. The comments did have a small negative impact
on the pound however losses were quickly recouped.

Euro:

A strong performance from the euro following hawkish comments from the ECB’s Quaden. He reiterated that
monetary policy is still accommodative and that the ECB is still exercising ‘strong vigilance’ underpinning expectations
of a rate hike from the ECB in March. Quaden also commented that current interest rate levels did
not hamper investment and that any decisions will be based on growth and inflation data.

General News:

• Bullish comments from the EU’s Junker on the Japanese economy boosted the yen overnight. Junker
said that Japanese recovery was continuing and that market players need to take this into account.
Junker also noted that FX levels should reflect fundamentals which may worry some investors with the
yen at the low levels we’re seeing at the moment.
• The New Zealand dollar failed to post gains as inflation expectations for the first quarter slipped again
adding pressure on the RBNZ to stem the interest rate frenzy.
• Further strength in the oil market with continuing fears over the Middle East situation and storm warnings
in the US. Oil prices were also underpinned by the weakness in the dollar. Ahead of an expected
large drawdown in US gasoline stocks we may see further gains in Texas gold. Oil trades $61.49.

Interbank foreign exchange rates:
Updated 26th February
G BRITISH POUND / US DOLLAR 1.9601
GB POUNDS / EURO 1.4882
EURO / US DOLLAR 1.3164
GB POUND / JAPANESE YEN 235.30
GBP/AUD 2.4753
GBP/NZD 2.7740
GBP/ZAR 13.9709
GBP/CHF 2.4090
GBP/CAD 2.2766
GBP/SGD 2.9942
GBP/THB 66.997
GBP/HKD 15.3092