Euro Pounds Brief Monday 29 May 2007

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Monday 29/05/2007

• Sterling loses ground following sharp rally
• MPC’s Blanchflower explains decision to vote for a hike
• UK Sunday Times reports slowdown in housing market is nigh
• ECB’s Weber says current hike cycle not at end
• Commodity currencies dip as yen posts gains
• Oil dips as Nigerian supply issues fade

US Dollar:

Not much from the US markets on Friday or the extended weekend due to Ascension Day yesterday. The dollar market remains jittery with ongoing talks with Iran and news that North Korea had test fired short-range missiles into the China Sea. Recent strength in US figures had worried global risk markets that T-Bond yields were creeping back up towards 5% sparking sell-offs in gold and global stocks. A poor existing home sales figure negated these worries as yields again dropped. This morning cable is looking buoyant in the mid-1.98 bracket and euro-dollar is trading mid-1.34’s following a dip early this morning before recovering losses. The only major data release expected today is consumer confidence which is looking to come in higher month-on-month.

Pound:

Plenty to report this morning beginning with the MPC’s Blanchflower explaining his decision to vote for a hike in the previous meeting. The known dove seems to have voted for the move to show that the MPC were ‘on the case’ about inflation. He did see global and domestic growth as ‘robust’ and food prices rising all adding to inflationary pressures. Crucially he did say that ‘if we have to, we can reverse’ showing that the MPC were looking at all incoming data. Elsewhere David Smith in the Sunday Times reports that he sees an end to the UK house price boom. This has been echoed this morning by a drop in house price inflation reported by Hometrack. They also see the headline rate of growth slowing sharply this year exacerbated by an increase in supply.
No significant data due from the UK today.

Euro:

More hawkish comments from the ECB overnight and this morning with the bank trying to keep a decent support under the euro. Known hawks continue to try and reinforce the bank’s anti-inflationary stance however most market participants are waiting to see what Monsieur Trichet has to say following a hike in June regarding ECB policy in the second half of 2007.
More German regional CPI data due for release today along with European current account information.

General News:

• The yen rallied overnight as Japan’s unemployment rate unexpectedly fell to a 9-year low, data showed. This sparked a minor round of carry trade reversals.
• Commodity currencies such as the Aussie and Kiwi dollar dipped on the above Japanese news with
emerging and high yield markets exposed to sharp sell-offs.
• Oil dips as Iran and the US resume talks following a breakdown in earlier negotiations. The ongoing unrest in Nigeria still seems to be bothering traders with kidnappings reported on a daily basis. This morning oil is trading $64.70.


Interbank foreign exchange rates:
Updated 29th May
G BRITISH POUND / US DOLLAR 1.9840
GB POUNDS / EURO    1.4757
EURO / US DOLLAR    1.3439
GB POUND / JAPANESE YEN  240.67
GBP/AUD 2.4248
GBP/NZD 2.7289
GBP/ZAR 14.0595
GBP/CHF 2.4354
GBP/CAD 2.1459
GBP/SGD 3.0310
GBP/THB 65.273
GBP/HKD 15.5065

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