Weekly Commentary 13 February 2015

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1 Contact your treasury specialist Corporate Treasury or Business Banking Treasury Institutional Treasury Specialised Finance +353 (0) UK Sales Team (within the UK) US Sales Team Keep in touch with the markets, visit Weekly Commentary 13 February 2015 Themes from the week Euro recovers some more ground (despite Greek drama) Headlines for the week ahead BOE & Fed minutes, Euro area flash PMIs The Euro area economy grew by 0.3% in Q4 the 7th consecutive quarter of positive growth and followed an increase in GDP of 0.2% in Q3. The German economy led the way growing by 0.7%... while GDP was flat in Italy and increased by just 0.1% in France. The euro recovered some further ground against the dollar and is now trading at around $1.14 (from a post-ecb QE low of just under $1.11). EUR/STG was little changed at just over 74p. Reports that Greek official are in negotiations with the Troika helped sentiment in equity markets towards the end of the week, as did news of a ceasefire between Russia and Ukraine. Data section contents (changes on the week) Commodities Highlights for the week ahead Prev Fcst Cons Tues UK CPI Inflation 0.5% 0.4% 0.4% ZEW Index Empire Index Wed BOE Minutes UK Unemployment Rate 5.8% 5.7% 5.7% UK Annual Earnings 1.7% 1.7% 1.7% US Housing Starts 1089k 1073k 1073k US Industrial Output -0.1% 0.4% 0.4% Fed Minutes Thurs US Jobless Claims 304k Fri UK Retail Sales 0.4% -0.2% -0.2% EA Flash PMIs The Bank of England (BOE) revises down its forecast for inflation in 2015 to 0.5%, reflecting the impact of lower energy costs, but expects a pick up to 1.8% in 2016 and 2.1% in The BOE says it expects to raise interest rates gradually as the economy continues to grow solidly and the unemployment rate falls further. Fed member Williams says the central bank is getting closer and closer to increasing interest rates amid really strong employment growth. His colleague, Lacker, says raising rates in June looks like an attractive option for me. The Swedish central bank cuts its main policy interest rate by 10bps to minus 0.1%... and will also conduct QE. The krona lost ground post the announcement. The week ahead sees the release of Fed and BOE minutes, UK laobur market data and flash PMIs in the Euro area Spot rates EUR/GBP EUR/CHF EUR/USD EUR/JPY GBP/USD EUR/CAD EUR/SEK EUR/PLN EUR/NOK EUR/ZAR EUR/HUF EUR/CZK year 3 year 5 year 7 year 10 year 15 year 20 year EUR GBP USD Official rates Current Q 15 Q2 15 Q3 15 Fcst Cons Fcst Cons Fcst Cons EUR GBP USD Recent research View recently published reports at including: The Bulletin (monthly analysis of international and Irish markets) The Outlook (quarterly analysis of trends in the Irish economy) All rates quoted are indicative market rates

2 Data section contents Data section showing % changes on the week Long term fixed rates Commodity prices Europe Euro area GDP up 0.3% in Q4 The Euro area economy ended 2014 on a relatively firm note with GDP rising by 0.3% in Q4. This marked a 7 th consecutive quarter of positive growth and followed an increase in output of 0.2% in Q3. Germany led the way growing by 0.7%, while GDP rose by just 0.1% in France and was flat in Italy. The Spanish and Portuguese economies expanded again in the final quarter, though the Greek economy contracted. Greece was to the fore for much of the week with the Eurogroup meeting on Wednesday failing to reach agreement on a framework for negotiations on the way forward for the country. There were reports towards the end of the week that Greek officials have entered into discussions with the Troika ahead of this Monday s Eurogroup, which helped to lift sentiment in European equity markets. The euro recovered some further ground against the dollar, helped by the release of some weaker than expected US economic data, and is now trading at around $1.14 (from a post-ecb QE low of $1.11). Ireland Car sales rising strongly New car sales rose by nearly 30% to 92,000 in 2014 and the early signs are that this upward trend will continue in New car sales rose by 26% y-o-y in January to more than 20,000 for the month. January is the single most important month for car sales and puts the industry on track to sell more than 100,000 cars this year for the first time since The pickup reflects the improving consumer environment as retail sales rose by 6.3% last year and consumer confidence is at its highest level since With employment rising and disposable incomes increasing modestly, this all bodes well for a continued recovery in consumer spending this year. United Kingdom BOE says will raise interest rates gradually The Bank of England Inflation Report noted that growth in the economy remains solid and domestic demand robust, with the unemployment rate falling to its lowest level for more than six years and the growth rate of wages...beginning to pick up. While the BOE revised down its forecast for inflation this year, largely reflecting the impact of lower energy costs, it expects the rate of increase in consumer prices to pick up again in 2016 (to 1.8%) and to accelerate further in 2017 (2.1%). It maintained its forecast for GDP growth this year at 2.9% and revised up 2016 to 2.9% (from 2.6%). Given this backdrop, it expects to raise interest rates gradually over the next 2-3 years. It was not specific about the timing of a first increase in rates, though it seems reasonable to expect a move towards the end of this year. Sterling strengthened against the dollar over the course of the week, rising to almost $1.54, but was little changed against sterling just over 74p. United States Dollar loses ground The dollar lost ground this week following the release of some softer than expected economic data. Specifically, retail sales fell in January, while the number of new jobless claimants rose last week. The fundamentals for consumer spending, including strong job gains and rising confidence, remain favourable however, so perhaps not too much should be read into the retail sales data. Indeed, Fed member Williams said the central bank is getting closer and closer to increasing interest rates amid really strong employment growth, while his colleague, Lacker said raising rates in June looks like an attractive option for me. Government bond yields rose further this week with the 10-year increasing by around 5bps to just over 2%. Next week sees the release of the minutes of the Fed s January. 2 Bank of Ireland Global Markets

3 Data section contents Data section showing % changes on the week Long term fixed rates Commodity prices Japan Economy to have rebounded in Q4 Data due at the start of next week are expected to show the economy rebounded in the final quarter of GDP is forecast to increase by 0.9%, after falling by 0.5% in Q3, with consumer spending expected to have risen further in the final three months of the year and business investment seen recovering having contracted in Q3. The Bank of Japan also meets next week and is likely to keep the size of its QE programme unchanged. The yen was little changed against the dollar at around Y Bank of Ireland Global Markets

4 Data section changes on the week EUR/GBP Spot % 1M 4 3M 12 6M 26 12M 60 EUR/USD Spot % 1M 3 3M 12 6M 28 12M 81 GBP/USD on the week Spot % 1M -3 3M -10 6M M -17 EUR currency pairs EUR/CAD % EUR/AUD % EUR/NZD % EUR/CHF % EUR/JPY % EUR/SEK % EUR/NOK % EUR/HUF % EUR/PLN % EUR/ZAR % EUR/CZK % USD currency pairs USD/CAD % USD/AUD % USD/NZD % USD/CHF % USD/JPY % USD/CNY % USD/MXN % USD/SGD % USD/BRL % USD/THB % USD/ZAR % GBP currency pairs on the week GBP/CAD % GBP/AUD % GBP/NZD % GBP/CHF % GBP/JPY % GBP/SGD % GBP/MYR % GBP/NOK % GBP/HKD % GBP/SEK % GBP/DKK % GBP/ZAR % on the Week Base O'night 1 week 2 week 1 M 2 M 3 M 6 M 9 M 12 M EUR GBP USD on the Week 2 year Chng 5 year Chng 7 year Chng 10 year Chng EUR GBP USD Government bond yields (YTM) on the Week 2 year Chng 5 year Chng 10 year Chng 30 year Chng Ireland Germany US UK Prime Rate Bank of Ireland prime rate 0.59 on the Week ISEQ % DOW Jones % S&P % SMI % Nasdaq % FTSE % Eurostoxx % Nikkei % Commodities on the Week Brent % WTI Cushing % Gold % Wheat % Emissions Allowance % 4 Bank of Ireland Global Markets

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