Euro Pounds Brief Friday 9th March 2007

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Friday 09/03/2007

• MPC keep rates on hold as expected
• ECB hike 0.25% to 3.75%, as expected.
• ECB tones down hawkishness hinting that rates may pause at 4%
• US Non-Farm Payrolls due to come in lower this afternoon
• Global stock markets continue recovery
• Oil stabilises with support from Australian supply concerns

US Dollar:

A big day for the dollar today as the closely watched Non-Farm Payrolls, the leading indicator of the US market,
are released at 1330GMT today. Last month 111k jobs were added to the economy however this month
analysts are looking at only 95k jobs added. This would tie in with recent concerns that the US economy is
coming under pressure and also links with Goldman’s report yesterday.
Very little action in the market yesterday as the spotlight was on the UK and European interest rate decisions.
Various comments from Fed officials and observers talked down the risk of a US slowdown with Poole even
referring directly to Greenspan’s comments earlier in the week.

Pound:

The MPC pleased borrowers yesterday by opting to leave rates on hold at 5.25% quelling fears that rates may
again go up. However one more move upwards is still on the cards in order to curb inflation risks. We will
have to wait a fortnight before the voting pattern is revealed in the minutes as no comments were released
with the decision yesterday. The decision had a small effect on cable with a sharp drop of 40 pips immediately
after the decision however 1.93 still looks like very good support.
HBOS house prices again showed a sharp increase which may add to pressures on the MPC to push rates to
5.5% in order to bring the housing market under control.

Euro:

The ECB raised the benchmark rate to 3.75% as expected. As usual all eyes were on the press conference
following the decision where Trichet toned down his hawkish stance prompting speculation that 4% may be
the peak of rates in the current cycle. Trichet lowered inflation expectations but raised growth projections
however he did stress that rates were not ‘low’ any more but remained accommodative. Markets have rates
peaking in June at 4%. The forex market was little changed on the decision or the press conference.

General News:

• George Soros yesterday blamed carry trade activity in the Japanese markets for the recent equity
slump which comes as no surprise given the corresponding move in the yen.
• Swiss interest rate rises may have to come to an end in 2007 as the inflation outlook flattens. The
Swiss National Bank will find it difficult to explain any further hikes given that CPI was the prime reason
for raising rates.
• Oil continued to trade sideways yesterday and in Asia with very little data driving the market. Prices
seem to be underpinned by a cut in Australian output caused by a cyclone and Iran’s objections to any
UN proposals regarding their nuclear programme. Oil currently trades $61.58.

Interbank foreign exchange rates:
Updated 9th March
G BRITISH POUND / US DOLLAR 1.9298
GB POUNDS / EURO 1.4674
EURO / US DOLLAR  1.3145
GB POUND / JAPANESE YEN 226.53
GBP/AUD 2.4758
GBP/NZD 2.8030
GBP/ZAR 14.1919
GBP/CHF 2.3694
GBP/CAD 2.2771
GBP/SGD 2.9440
GBP/THB 63.034
GBP/HKD 15.0709