A big day for the UK today with the MPC’s rate decision due at 1200BST

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Thursday 05/04/2007

• Sterling treads water ahead of MPC decision today
• MPC rate decision too close to call
• Poor ISM data points to US Q1 GDP slowdown
• ECB’s Trichet wants price stability
• Commodity/high yield currencies continue to thrive
• Oil dips again as Iran releases British hostages

US Dollar:

The dollar remained fairly stable yesterday in the face of yet more disappointing data. US non manufacturing
ISM dropped for the second month running pointing to a slowdown in the first quarter GDP outlook. The dollar
did remain supported by the Fed’s Fisher who commented that he saw sub-prime worries clouding the economic
outlook and that he saw inflation still running too high for a rate cut.
Again US markets are in the holding pattern ahead of payroll data due out tomorrow. Most US markets are
open for the data. Today we have minor employment data due and there are no scheduled speakers.

Pound:

A big day for the UK today with the MPC’s rate decision due at 1200BST. Markets are still torn between a
0.25% hike or a pause; the odds at the moment are favouring a pause however with markets expecting a
hike in May, why wait? With inflation running well above target, recent strong economic data and surging
housing market many analysts believe a pause now will cause more misery later. Adding fuel to the fire was
an article in the Lancashire Evening Post quoting Governor Mervyn King who saw manufacturing pricing pressures
increasing, adding to inflation.
Markets should remain choppy running up to midday. This morning cable is trading mid 1.97, near 3-month
highs and against the euro the pound is mid-1.47.

Euro:

A better performance in Europe yesterday with comments from ECB members Trichet and Liebscher. President
Trichet reiterated his wishes for price stability whilst Liebscher commented that price risks have not diminished
and that the bank has not implied that rates are close to the peak. Both speakers repeated the ECB
stock line that rates are still accommodative.
German industrial production is due this morning with markets looking for a slight pick up.

General News:

• The yen stabilised yesterday after a sharp drop during the week. The appetite for risk looks to have
returned and with rates low in Japan, it is a borrowers paradise.
• The Kiwi, Aussie and Rand all picked up yesterday with strong commodity performances and investors
seeking high yield investments.
• A mixed day for oil yesterday with Iran promising the release of UK hostages causing a dip but a sharp
drop in US inventories keeping a floor in the market. This morning oil is trading $64.44.

Interbank foreign exchange rates:
Updated 5th April
G BRITISH POUND / US DOLLAR 1.9752
GB POUNDS / EURO 1.4782
EURO / US DOLLAR 1.3360
GB POUND / JAPANESE YEN 234.25
GBP/AUD 2.4163
GBP/NZD 2.7398
GBP/ZAR 14.1241
GBP/CHF 2.4098
GBP/CAD 2.2882
GBP/SGD 2.9874
GBP/THB 64.212
GBP/HKD 15.4329

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