Another quiet session in the UK markets With house prices on the March again a rate rise in early 2007

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Friday 29/12/2006

• German GfK consumer index falls in December
• Euro hits record high versus Yen in shortened session
• ECB’s Mersch takes a hawkish tone
• Dollar stable in quiet session
• Nikkei ends the year up 6.9%
• Oil rallies as US stockpiles drop

US Dollar:

The US dollar softened ever so slightly in thin trade yesterday as US data disappointed. Initial claims
came in lower than expected and cable jumped around 50 pips.
The overall negative dollar sentiment remains in the market as investors look to the Fed to start cutting
rates in 2007.
This afternoon the Chicago PMI is released at 1500 GMT with markets expected to be thin.

Pound:

Another quiet session in the UK markets. With house prices on the March again a rate rise in early 2007
looks more and more likely.
The only data release this morning is the GFK consumer confidence figure due at 1030 GMT which
should provide the market with some direction heading into the New Year.

Euro:

This morning the German GfK figure showed an unexpected decline in December coming in at 8.7 from
an expected 9.4.
Yesterday ECB’s Yves Mersch strengthened the Euro with hawkish comments stressing that Euro interest
rates remain ’historically low’. Markets took this as an indication that the ECB will continue to
tighten in 2007.

General News:

• The euro hit a record high versus the Yen with the continuing uncertainty over the timing of rate
hikes in 2007.
• The Nikkei index ended the year up 6.9% recording Japan’s longest bull run. 2006 was the
fourth year in a row that the Japanese stock index recorded gains.
• The New Zealand dollar continued to show gains as investors looked to the central bank to raise
rates further to rein in household expenditure.
• Oil rallied slightly as US crude stockpiles dropped. Mild weather across the US continues to cap
any gains with the headline contract trading $60.58

Interbank
Updated 29th December
GB POUNDS / US DOLLAR 1.9620
GB POUND / EURO 1.4920
EUR/USD 1.3144
GBP/JPY 233.30
GBP/AUD 2.4804
GBP/NZD 2.7782
GBP/ZAR 13.6543
GBP/CHF 2.3971
GBP/CAD 2.2757
GBP/SGD 3.0060
GBP/THB 69.110
GBP/HKD 15.2398

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