Morning Commentary  03 July 2009 08:39

Economist: Patrick Mullane ECB holds steady at 1%, no change in rhetoric US payrolls disappoint Last July, the ECB surprised the markets by raising the main interest rate by 25bps bringing the then rate to 4.25%. What a difference a year makes! Yesterday, the ECB met and kept the refinancing rate at a record low of 1% and there were no surprises from the press conference afterwards. Trichet signalled that the ECB would be keeping interest rates at this level for some time as “The current rates are appropriate”. This is the third successive month that Trichet has used this term which means there is no imminent plan to change rates. However, he also maintained, as he has done for some time, that 1% is not necessarily the floor for rates saying “we did not decide today that this was the lowest level we would attain under any circumstances”. He felt that the worst of the recession may behind the Euro area, saying “Activity is likely to remain weak but should decline less strongly than was the case in the first quarter”but a recovery is not expected until mid 2010. Trichet stated the ECB was happy with the bank’s first 12-month liquidity operation which supplied a record amount to banks. Trichet felt this move would “strengthen further the liquidity of banks and support money markets”. In addition, the ECB will begin their purchase of up to EUR60bn of covered bonds on July 6. On inflation, he said that the fall in inflation rates was mainly due to temporary effects but that even after a return to positive inflation rates the bank expected “price developments to remain dampened over time”. There was nothing new for the markets to interpret after the meeting with the ECB clearly in a holding pattern. Unless serious downside risk materialise in the second half of the year we do not see the ECB cutting rates again. We expect them to stay on hold at 1% until into 2010 and we see no sign after this meeting that we need to change that view. The Euro lost a little ground against the Dollar and Sterling in the aftermath of the meeting but remains largely unchanged. It’s currently trading at over $1.40 and £0.85 respectively. There was little effect on bonds either, 10 year bunds rose slightly with yields falling about 10bps. In the US, nonfarm payrolls declined by more than expected. Job losses in June were 427k following losses of 322k in May. This interrupted a trend that had seen job losses shrink in each month since the peak of 741k jobs lost in January. The 3 month moving average did improve from -498k in May to -436k in June but the numbers remain very poor. Over 6 million US jobs have been lost in the past 18 months and the unemployment rate is now up to 9.5%, a 26 year high. June’s figures are a very disappointing setback indicating this is no light at the end of the tunnel yet and the US labour market is be weak for some time. Equities fell sharply after the poor employment data; the S&P lost 2.9%, the FTSE 2.5% and the Eurostoxx 3.3%.     Data section contents (changes on the day) Spot and forward rates Equity indices World forex rates Bond yields Money market rates Commodities Long term rates Key data releases   Prev Fcst Cons 9.00  EA PMI Services  44.5  44.5  44.5  9.30  UK PMI Services  51.7  51.5  51.5  10.00  EA Retail Sales  0.2%  -0.1%  -0.15  Spot rates More details in data section EUR/GBP 0.8539 EUR/CHF 1.5184 EUR/USD 1.4017 EUR/JPY 134.56 GBP/USD 1.6410 EUR/CAD 1.6227 EUR/SEK 10.8920 EUR/PLN 4.3460 EUR/NOK 8.9610 EUR/ZAR 10.9994 EUR/HUF 270.45 EUR/CZK 25.837 Money market rates More details in data section Base O'night 1 week 1 M 3 M 6 M 12 M EUR 1.00 1.23 0.69 0.81 1.12 1.32 1.55 GBP 0.50 0.36 0.38 0.47 0.90 1.16 1.42 USD 0-0.25 0.29 0.37 0.49 0.76 1.09 1.51 Long term rates More details in data section 2 year 3 year 5 year 7 year 10 year 15 year 20 year EUR 1.73 2.21 2.85 3.28 3.65 4.06 4.20 GBP 2.25 2.95 3.68 4.00 4.25 4.51 4.50 USD 1.44 2.05 2.91 3.39 3.77 4.07 4.15 World forex rates More details in data section CAD AUD NZD CHF JPY EUR 1.6227 1.7521 2.2108 1.5184 134.56 USD 1.1579 1.2509 1.5788 1.0831 95.99 GBP 1.9000 2.0521 2.5888 1.7774 157.53 USD/CNY 6.8327 USD/BRL 1.9518 USD/MXN 13.2440 USD/THB 34.07 USD/SGD 1.4498 USD/ZAR 7.8500 Prime Rate 1.3600 Recent research See all recent research (www.boi.ie/eru) See most recent versions of: The Bulletin (monthly analysis of international and Irish markets) UK View (quarterly 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) Irish Business Review (quarterly research, analysis and commentary) All rates quoted are indicative market rates

Daily Commentary 03 July 2009     Data section - changes on the day     Spot and forward rates Change on the day      EUR/GBP Change Spot 0.8539 -0.63% 1M 1 3M 0 6M 1 12M 8    EUR/USD Change Spot 1.4017 -1.49% 1M 1 3M -2 6M -4 12M 3    GBP/USD Change Spot 1.6410 -0.72% 1M -1 3M -3 6M -7 12M -19     World forex rates Change on the day      EUR currency pairs Change EUR/CAD 1.6227 -0.16% EUR/AUD 1.7521 0.46% EUR/NZD 2.2108 0.48% EUR/CHF 1.5184 -0.07% EUR/JPY 134.56 -2.12% EUR/SEK 10.8920 1.61% EUR/NOK 8.9610 0.01% EUR/HUF 270.45 0.89% EUR/PLN 4.3460 0.84% EUR/ZAR 10.9994 0.17% EUR/CZK 25.837 0.61%    USD currency pairs Change USD/CAD 1.1579 1.31% USD/AUD 1.2509 1.98% USD/NZD 1.5788 2.06% USD/CHF 1.0831 1.35% USD/JPY 95.99 -0.69% USD/CNY 6.8327 -0.03% USD/MXN 13.2440 0.68% USD/SGD 1.4498 0.51% USD/BRL 1.9518 1.00% USD/THB 34.07 0.18% USD/ZAR 7.8500 1.20%    GBP currency pairs Change GBP/CAD 1.9000 0.40% GBP/AUD 2.0521 1.32% GBP/NZD 2.5888 1.20% GBP/CHF 1.7774 0.53% GBP/JPY 157.53 -1.44% GBP/SGD 2.3788 -0.18% GBP/MYR 5.7763 -0.82% GBP/NOK 10.4901 0.63% GBP/HKD 12.7179 -0.73% GBP/SEK 12.7530 2.26% GBP/DKK 8.7163 0.60% GBP/ZAR 12.8802 0.99%     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 1.23 - 0.69 0.74 0.81 0.97 1.12 - 1.32 - 1.46 - 1.55 GBP - 0.50 0.36 0.38 - 0.43 - 0.47 0.72 0.90 1.16 1.31 1.42 USD - 0-0.25 0.29 0.37 0.35 0.49 - 0.62 0.76 1.09 1.38 - 1.51     Long term rates Change on the day   2 year Chng 5 year Chng 7 year Chng 10 year Chng EUR 1.73 -0.10 2.85 -0.07 3.28 -0.06 3.65 -0.05 GBP 2.25 -0.15 3.68 -0.12 4.00 -0.09 4.25 -0.06 USD 1.44 -0.08 2.91 -0.14 3.39 -0.09 3.77 -0.06 Equity indices Change on the day Change ISEQ 2670 -0.96% DOW Jones 8281 -2.63% S&P 500 896 -2.91% SMI 5355 -2.15% Nasdaq 1797 -2.67% FTSE 100 4248 -2.45% Eurostoxx 50 2370 -3.27% Nikkei 9816 -0.64% Commodities Change on the day Change Brent 66.85 -3.11% WTI Cushing 66.96 -3.72% Gold 933.10 -1.23% Wheat 498.75 -1.19% Emissions Allowance 13.10 -1.50%   Government bond yields (YTM) Change on the day   2 year Chng 5 year Chng 10 year Chng 30 year Chng Ireland 0.79 0.02 3.37 -0.03 5.22 0.01 Germany 1.21 -0.11 2.38 -0.12 3.33 -0.09 4.15 -0.07 US 0.98 -0.06 2.42 -0.10 3.50 -0.05 4.32 -0.01 UK 0.72 -0.06 2.20 0.00 3.74 -0.03 4.46 -0.03     Prime Rate   Bank of Ireland prime rate    1.36     Market data supplied by Reuters     Disclaimer Produced by the Economic Research Unit at Bank of Ireland Global Markets ("GM"). Bank of Ireland incorporated in Ireland with limited liability. Bank of Ireland is regulated by the Financial Regulator. In the UK, Bank of Ireland is authorised by the Irish Financial Regulator 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. This document is for information purposes only and GM is not soliciting any action based upon it. GM believes any information contained herein to be materially accurate but GM does not warrant its accuracy or completeness and this information should not be relied upon for any purpose. 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 derivative transaction that it has executed or will execute. Any investment, trading and hedging decision of a party will be based on its own judgement and not upon any view expressed by GM. This document does not address all risks related to the transactions described. You should obtain independent professional advice before making any investment decision. Any expressions of opinion reflect current opinions as at 03 July 2009. This publication is based on information available before this date. For private circulation only. 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 Global Markets