Euro Pounds Brief Wednesday 28th March 2007

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Wednesday 28/03/2007

• Recession speculation continues to worry the US
• Sterling dips against the majors despite a hawkish King
• Sterling loses out on disappointing housing data
• ECB’s Liebscher bolsters euro with inflation warnings
• Exotics fall on Iranian tension
• Oil spikes to a high of $68 on rumours of Iran attack on US Navy

US Dollar:

A fairly placid day in the dollar markets ahead of Bernanke’s appearance before the Joint Economic Committee
today. Fedwatchers will be looking to Bernanke to clarify whether the Fed have dropped their tightening
basis following the deletion of ‘additional firming’ from the Fed’s statement last week.
Elsewhere markets are beginning to see more and more reports focussing on whether a recession is on the
cards for the states. There are arguments both for and against however the mere presence of these reports is
basis enough for treading carefully. Meanwhile the largest demonstration of US force in the Gulf commenced a
training exercise yesterday. Military tensions over Iran are building.

Pound:

A poor performance against the majors yesterday for the pound despite MPC Governor King’s hawkish outlook
on inflation. King is worried that prices charged by firms will rise adding to upside inflationary pressures. Following
the Inflation Report in February markets still expect rates to hit 5.5% in order to control inflation however
futures markets moved the timing to possibly even May after King’s remarks. King’s pricing worries were
also echoed by Gieve, Barker and Sentence.
Nationwide’s house price survey came in lower than expected this morning causing sterling to fall a tad further.
Today we see final GDP figures for the 4th Quarter and the UK current account.

Euro:

More strength from Europe as ECB member Klaus Liebscher warned of inflation risks for late 2007 and early
2008 citing a high degree of volatility in oil prices. In addition Germany’s Ifo report came in stronger than
expected as the VAT hike fails to dampen spending. With ECB members stressing that rates may not have
peaked, rate hikes in the Eurozone look set to continue. Data-wise the most significant releases from Europe
today are German regional inflation figures.

General News:

• Rumours that Iran had launched a strike on a US Navy ship in the Gulf last night brought some volatility
back into the market last night. Rumours were quickly rubbished by the US however this will no
doubt keep markets on their toes.
• As a result of the above the usual flight to safety caused a spike in the yen with small-scale carrytrade
reversal.
• Again flight to safety caused a dip in some of the desirable exotics as investors ran for the hills.
• Oil spiked to over $68 on the rumours from Iran late last night but quickly dipped. With tensions running
high oil is trading at $64.08.

Interbank foreign exchange rates:
Updated 28th March
G BRITISH POUND / US DOLLAR 1.9630
GB POUNDS / EURO  1.4712
EURO / US DOLLAR   1.3344
GB POUND / JAPANESE YEN 230.31
GBP/AUD 2.4399
GBP/NZD 2.7571
GBP/ZAR 14.3114
GBP/CHF 2.3797
GBP/CAD 2.2702
GBP/SGD 2.9781
GBP/THB 63.4852
GBP/HKD 15.3348