Foreign Exchange Market Overview - April 2007

We are delighted to provide you with our latest currency newsletter, which offers a useful insight into the main FX headlines over the last few weeks and will hopefully answer some questions as to why a certain currency has moved recently.

Sterling Overview For the first time ever The Bank of England Governor Mervyn King was forced to write to the Chancellor of the Exchequer Gordon Brown explaining why inflation was more than 1% away from the Bank's 2% target rate following Consumer Price Inflation coming in at 3.1%. This has made a 25 basis point interest rate rise in May look highly likely with many analysts predicting another rate rise later this year. Rising interest rates will attract foreign investment increasing the strength of the pound making foreign currency purchases less expensive. With a growth in UK wage acceleration, robust housing data, better than expected UK core output price growth and high inflation, sterling is in a strong position and this could prove good for overseas property buyers.

GBPEUR / GBPCYP (The Cyprus pound is influenced by the euro) In the eurozone the economy is growing at a steady pace and interest rates are set to remain on hold for a while as inflation is currently at 1.9% which is within the European Central Bank (ECB) target of 2% and other economic data also seems to be falling in line with expectations. Despite this, the eurozone economy looks healthy and there is a good chance of another rate rise later this year, although sterling still appears the stronger of the two currencies and any sterling strength may lead to gains, and therefore cheaper euros and Cyprus pounds.

GBPUSD (Cable) This month it has all been about the pound versus the dollar as the big $2 dollar level was finally breached. A series of strong economic data ending with higher than expected inflation data here in the UK was enough to push the dollar to the highest buying levels since 1992 and hit the highest point for 26 years creating some fantastic buying opportunities for those in need of US dollars and making the US property market very attractive. It seems clear the US economy is in trouble at the moment and with the interest rates likely to rise in the UK and drop later on in the year in the US, cable seems to have a lot of potential on the upside.

GBPCAD (Loonie) A series of mixed economic data has meant the Canadian dollar has fluctuated a lot this month creating some good buying and selling opportunities. Despite higher than expected inflation data it seems interest rates will remain at 4.25% for the time being. The CAD has finished the month strong against the pound meaning the loonie is now more expensive, although economists expect the CAD to remain rangebound, unless the Bank of Canada unexpectedly raise interest rates this week. In doing so, we could see the loonie strengthen increasing the price of the Canadian dollar.

GBPMTL (The Maltese lira is influenced by the euro) The intervention rate remains at 4% following the Monetary Policy Advisory Council meeting last week. The Governor considered that developments since the previous meeting did not justify a change in the monetary policy stance. The Governor pointed out, however, that given the evolving scenario of rising interest rates abroad and its implications for the relative attractiveness of domestic assets, a revision of the monetary policy stance may be required in the near term. The Monetary Policy Advisory Council is due to meet again on 29 May 2007.

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