Morning Commentary  18 May 2012 12:58

This report was produced by the Bank of Ireland Economic Research Unit (ERU) Senior Economist, Michael Crowley 353 (0) 766 244 268 Stocks fall again After a respite of sorts on Wednesday, stocks fell again yesterday. European indices were off more than 1%, the US markets fell by between 1.5% and 2%, while overnight the Nikkei in Japan lost almost 3% with other Asian markets very weak as well. All of this amid ratings downgrades to banks (in the case of Spain), downgrades to sovereigns (in the case of Greece) and the threat of sovereign downgrades (to all Euro area countries). It was more of the same in Europe earlier today with stocks falling sharply at the open. They have, however, managed to stage a decent rebound since and are now in positive territory for the day. Not surprisingly, core government bond yields continue to fall (as investors flee to safety), with US 10-year yields declining close to record lows of around 1.7% and equivalent German yields already at all-time lows of 1.4%. The euro continued to head south against the dollar earlier today as well, trading down to sub $1.2650 but has also since managed to claw its way back to around $1.27. The single currency has also risen against sterling after Bank of England member, Fisher, said he would be ‘uncomfortable’ with a further rise in the value of the UK currency. Another member, Posen, has indicated he may renew his call for further QE, which may also weigh on sterling. There is not much one can say In the current environment other than to expect more of the same ahead of the elections in Greece in mid-June. Given the uncertainty that has been generated by the political situation there, together with on-going concerns about the state of the Spanish banking system, it is hard to envisage much of a turnaround for markets, absent perhaps some response from the ECB. Yesterday the IMF again called on the ECB to ease monetary policy (i.e. cut interest rates) and to implement further non-conventional monetary policy measures (renewed bond purchases, or further liquidity provision to banks). This may fall on deaf ears, though, as the signals from the Bank, at least to date, are that it is inclined to do nothing more on either of these two fronts.     Data section contents (changes on the day) Spot and forward rates Equity indices World forex rates Bond yields Money market rates Commodities Interest rate swap rates Key data releases   Prev Fcst Cons                               Spot rates More details in data section EUR/GBP 0.8044 EUR/CHF 1.2008 EUR/USD 1.2704 EUR/JPY 100.82 GBP/USD 1.5794 EUR/CAD 1.2914 EUR/SEK 9.1116 EUR/PLN 4.3561 EUR/NOK 7.5920 EUR/ZAR 10.5821 EUR/HUF 297.30 EUR/CZK 25.306 Money market rates More details in data section Base O'night 1 week 1 M 3 M 6 M 12 M EUR 1.00 0.25 0.27 0.34 0.61 0.93 1.25 GBP 0.50 0.55 0.58 0.68 1.01 1.33 1.86 USD 0-0.25 0.16 0.19 0.24 0.47 0.74 1.07 Interest rate swap rates More details in data section 2 year 3 year 5 year 7 year 10 year 15 year 20 year EUR 1.05 1.13 1.41 1.70 2.02 2.32 2.36 GBP 1.42 1.44 1.60 1.84 2.30 2.75 2.93 USD 0.71 0.80 1.15 1.51 1.90 2.29 2.44 World forex rates More details in data section CAD AUD NZD CHF JPY EUR 1.2914 1.2868 1.6693 1.2008 100.82 USD 1.0166 0.9874 1.3156 0.9451 79.35 GBP 1.6052 1.5992 2.0766 1.4925 125.34 USD/CNY 6.3280 USD/BRL 2.0087 USD/MXN 13.7880 USD/THB 31.31 USD/SGD 1.2722 USD/ZAR 8.3079 Prime Rate 0.9800 Recent research View recently published reports at www.treasuryspecialists.com/research, including: The Bulletin (monthly analysis of international and Irish markets) UK View (monthly analysis of trends in the UK economy) The Outlook (quarterly analysis of trends in the Irish economy) Irish Property Review (quarterly analysis of Irish property trends) Market Newsflash (up-to-the-minute analysis of key economic developments) All rates quoted are indicative market rates

Daily Commentary 18 May 2012     Data section - changes on the day     Spot and forward rates Change on the day      EUR/GBP Change Spot 0.8044 0.63% 1M 2 3M 10 6M 25 12M 65    EUR/USD Change Spot 1.2704 -0.17% 1M 1 3M 9 6M 28 12M 78    GBP/USD Change Spot 1.5794 -0.73% 1M -3 3M -8 6M -17 12M -35     World forex rates Change on the day      EUR currency pairs Change EUR/CAD 1.2914 0.51% EUR/AUD 1.2868 0.05% EUR/NZD 1.6693 -0.22% EUR/CHF 1.2008 0.01% EUR/JPY 100.82 -1.41% EUR/SEK 9.1116 0.35% EUR/NOK 7.5920 0.15% EUR/HUF 297.30 0.40% EUR/PLN 4.3561 0.03% EUR/ZAR 10.5821 0.15% EUR/CZK 25.306 0.07%    USD currency pairs Change USD/CAD 1.0166 0.71% USD/AUD 0.9874 0.21% USD/NZD 1.3156 0.08% USD/CHF 0.9451 0.15% USD/JPY 79.35 -1.20% USD/CNY 6.3280 0.06% USD/MXN 13.7880 0.50% USD/SGD 1.2722 0.36% USD/BRL 2.0087 0.46% USD/THB 31.31 -0.16% USD/ZAR 8.3079 0.36%    GBP currency pairs Change GBP/CAD 1.6052 -0.07% GBP/AUD 1.5992 -0.52% GBP/NZD 2.0766 -0.69% GBP/CHF 1.4925 -0.65% GBP/JPY 125.34 -1.96% GBP/SGD 2.0092 -0.38% GBP/MYR 4.9443 -0.86% GBP/NOK 9.4400 -0.62% GBP/HKD 12.2645 -0.74% GBP/SEK 11.3289 -0.30% GBP/DKK 9.2376 -0.58% GBP/ZAR 13.1604 -0.50%     Money market rates Change on the day       Base   O'night   1 week   2 week   1 M   2 M   3 M   6 M   9 M   12 M EUR - 1.00 - 0.25 0.27 - 0.28 0.34 - 0.43 - 0.61 0.93 - 1.09 1.25 GBP - 0.50 0.55 - 0.58 - 0.60 0.68 - 0.80 - 1.01 - 1.33 - 1.60 - 1.86 USD - 0-0.25 - 0.16 - 0.19 - 0.21 0.24 - 0.35 0.47 0.74 0.91 - 1.07     Interest rate swap rates Change on the day   2 year Chng 5 year Chng 7 year Chng 10 year Chng EUR 1.05 0.01 1.41 -0.03 1.70 -0.03 2.02 -0.03 GBP 1.42 -0.05 1.60 -0.05 1.84 -0.05 2.30 -0.03 USD 0.71 0.00 1.15 -0.02 1.51 -0.04 1.90 -0.06 Equity indices Change on the day Change ISEQ 3014 -1.90% DOW Jones 12442 -1.24% S&P 500 1325 -0.44% SMI 5873 0.13% Nasdaq 2814 -2.10% FTSE 100 5309 -0.59% Eurostoxx 50 2153 -1.31% Nikkei 8611 0.86% Commodities Change on the day Change Brent 106.90 -3.78% WTI Cushing 92.67 -0.27% Gold 1589.99 2.21% Wheat 658.75 2.97% Emissions Allowance 6.40 -0.77%   Government bond yields (YTM) Change on the day   2 year Chng 5 year Chng 10 year Chng 30 year Chng Ireland 6.45 0.30 6.88 0.02 7.24 0.01 Germany 0.05 -0.02 0.49 -0.05 1.43 -0.05 2.08 -0.07 US 0.30 0.01 0.75 -0.01 1.73 -0.07 2.83 -0.12 UK 0.33 -0.02 0.82 -0.04 1.84 -0.03 3.09 -0.03     Prime Rate   Bank of Ireland prime rate    0.98            Market data supplied by Thomson Reuters     Disclaimer This document has been prepared by the Economic Research Unit at Bank of Ireland Global Markets (“GM”) for information purposes only and GM is not soliciting any action based upon it. GM believes any information contained herein to be accurate but GM does not warrant its accuracy and accepts no responsibility, other than any responsibility it may owe to any party under the European Communities (Markets in Financial Instruments) Regulations 2007 as may be amended from time to time, and under the Financial Services Authority rules (where the client is resident in the UK), for any loss or damage caused by any act or omission taken as a result of the information contained in this document. No prices or rates mentioned are bids or offers by GM to purchase or sell any currencies, securities or financial instruments. Except as otherwise may be specifically agreed, GM has not acted nor will act as a fiduciary, financial or investment adviser with respect to any currency or derivative transaction that it has executed or will execute. Any decision made by a party after reading this document shall be on the basis of its own research and not be influenced or based on any view expressed by GM. This document does not address all risks. Any party should obtain independent professional advice before making any investment decision. Any expressions of opinion reflect current opinions as at 18 May 2012. This publication is based on information available before this date. This document is property of GM. The content may not be reproduced, either in whole or in part, without the express written consent of a suitably authorised member of GM staff. Bank of Ireland is regulated by the Central Bank of Ireland. In the UK, Bank of Ireland is authorised by the Central Bank of Ireland and authorised and subject to limited regulation by the Financial Services Authority. Details about the extent of our authorisation and regulation by the Financial Services Authority are available from us on request. Bank of Ireland incorporated in Ireland with limited liability. Registered Office - Head Office, 40 Mespil Road, Dublin 4, Ireland. Registered Number - C-1.           Bank of Ireland Global Markets