Euro Pounds Brief Friday 30th March 2007

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Friday 30/03/2007

• US figures surprise to the upside
• UK CBI retail sales strongest since December 04
• ECB’s Gaspari would be ‘surprised’ if rates hit 4.25% by end of 07
• Strong German data spurs the Euro
• Japanese inflation weaker than expected
• Oil trades sharply higher on Iran and French supply worries

US Dollar:

US GDP data for the 4th quarter was upwardly revised yesterday to 2.5% from 2.2%. The dollar gained
ground initially as no revision was expected and tested out 1.33 against the Euro. Despite the revision the
data did confirm that the US economy had slowed to below-trend for the last three quarters of 2006. Looking
deeper into the data revealed some worrying figures; residential investment dropped 19.8% and software
investment dropped 3.4%. With reduced corporate profits the US economy could be in for a rough ride.
This morning the dollar looks a tad soft, nothing too major. Today we have core PCE data which is expected
to pick up and then we see the Univ of Michigan confidence figure, expected to shrink.

Pound:

The Confederation of British Industry (CBI) released March’s retail sales data yesterday which grew to their
largest since December 2004. Sales were primarily driven by demand in DIY and household goods pointing to
a strong housing sector. With Easter sales just around the corner, this may prompt the MPC to raise rates to
it’s apparent target of 5.5% to combat inflation as spelled out in the Quarterly Inflation Report.
This morning we have consumer confidence data at 1030BST. Cable is trading in the lower 1.96 range and
euro is trading back towards 1.47.

Euro:

ECB member Mitja Gaspari yesterday said in an interview that he would be ‘surprised’ if rates were as high as
4.25% by the end of 2007 given the current data. He did stress that the ECB would be monitoring all incoming
data carefully before acting however 4% by the end of 2007 looks like the target rate. Gaspari also noted
that the 175 basis point change since December 2005 was ‘quite some change’ and that the stance was ‘less
accommodative than it used to be’.
Trichet this morning is quoted as saying the ECB will do whatever is necessary to maintain price stability.

General News:

• Overnight Japanese inflation fell for the first time in 10 months bolstering expectations that the BoJ
will not raise interest rates for a little while yet.
• In the Middle East the situation with Iran holding 15 British sailors is showing no signs of coming to an
end any time soon with Iran accusing the UK of having an ‘incorrect attitude’. The UN are now involved
voicing concerns over the current situation.
• Oil is trading sharply higher on the escalation of the Iran situation. In addition a strike in France is
threatening to crimp summer fuel supplies in the US. This morning oil is at $66.51.

Interbank foreign exchange rates:
Updated 30th March
G BRITISH POUND / US DOLLAR 1.9621
GB POUNDS / EURO  1.4709
EURO / US DOLLAR   1.3335
GB POUND / JAPANESE YEN 231.17
GBP/AUD 2.4303
GBP/NZD 2.7509
GBP/ZAR 14.2505
GBP/CHF 2.3879
GBP/CAD 2.2684
GBP/SGD 2.9759
GBP/THB 63.4107
GBP/HKD 15.3305

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