Euro Pounds Brief Wednesday 7/02/2007

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Wednesday 07/03/2007

• Sterling recovers as equities rally
• UK confidence close to two-year low according to Nationwide
• US dollar retreats a touch on mortgage fears
• Euro stable going into tomorrow’s rate announcement
• Reserve Bank of Australia keeps rates on hold
• Oil trades sideways ahead of US inventory data today

US Dollar:

The US market still seems to be concerned about the housing market and rightly so. Residential investment is
a leading indicator of economic growth in the US and a slowdown in the housing market could be a signal for
a slowdown in the economy as a whole. Greenspan seems to be fully aware of this hence his comments on
the possibility of a recession in the US. The US is still concerned about the level of defaults in the sub-prime
mortgage market however Fed officials don’t see this trend spilling over into other parts of the housing sector
quite yet.
The Dow Jones managed a rally yesterday following global stocks higher.

Pound:

The pound recovered slowly yesterday and overnight as markets stabilised following the equity rout. In addition
the MPC begin their meeting today ahead of the rate decision tomorrow. Markets still have a chance of a
hike priced in however history suggests that no move will occur as the MPC have never raised rates in March
in their history. With opinion split in the MPC camp as to the path of interest rates. There are two hawks calling
for a rate hike, two in favour of no more and the remaining five are content to adopt a wait and see policy.
With headline inflation falling a hike would seem to be a tad rash however one more move would bring
inflation right back to target.
A survey the Nationwide showed that consumer confidence neared a 2-year low as rate hikes continue to bite.

Euro:

The ECB would be happy with the progress of the Euro as it strives for credibility and stability. The Euro has
done virtually nothing in the past 48 hours ahead of tomorrow’s rate decision where a 0.25% hike is all but
nailed on. Interestingly an article carried by Bloomberg suggested that no move could be a possibility following
the equity market plunge in the past week in order for the ECB to show flexibility as well as credibility.

General News:

• The yen continued to lose ground as the carry trade unwind seems to have been overdone. With a
clear yield difference between Japan and the rest of the world value still remains in borrowing Japanese
money and investing in higher yield currencies.
• The Reserve Bank of Australia opted to keep rates on hold overnight as inflation falls and mixed data
continues from the Aussie economy.
• Global stocks continue to recover following last week’s market correction.
• Oil looked fairly stable in Asian trade ahead of US inventory data today. Risk remains to the upside as
stocks are forecast to fall. Oil currently trades at $60.68.

Interbank foreign exchange rates:
Updated 7th March
G BRITISH POUND / US DOLLAR 1.9308
GB POUNDS / EURO 1.4708
EURO / US DOLLAR  1.3123
GB POUND / JAPANESE YEN 224.73
GBP/AUD 2.4848
GBP/NZD 2.8242
GBP/ZAR 14.2304
GBP/CHF 2.3620
GBP/CAD 2.2682
GBP/SGD 2.9508
GBP/THB 63.281
GBP/HKD 15.0853