Market Report

The pound traded near the lowest in more than four years against the Euro before a report forecast to show retail sales growth was the slowest in six months in October, adding to signs Europe's second-largest economy is losing steam.

Retail sales probably increased 0.1 percent last month, the least since April, the report will show, as interest rates at a six-year high and a lending squeeze by banks curb consumer spending. The pound fell versus the Euro and against the dollar yesterday after the Bank of England signaled it will cut interest rates at least once next year to bolster the economy.

Consumer prices in the U.S. rose in October at the same pace as the prior month, reflecting increases in fuel costs that threaten to boost inflation and slow growth, Gasoline and heating-oil prices started rising in late October and have continued higher this month, suggesting fuel costs will remain a concern.

09.30 UK Retail sales
13.30 US Consumer Price Index

VC

With the credit crisis taking a hold, bigger companies are coming out of the woodwork and publicly announcing huge debt. Even with data signalling that inflation is up again, the UK pound is suffering across the board. Sterling did tick up to session highs against the US Dollar and Euro, while UK interest rate futures extended losses on Tuesday after data showed a stronger-than-forecast rise in inflation last month, dampening expectations the Bank of England could soon cut rates.

An ever strengthening Euro seems to be on the cards, with a look to be at below 1.4 against GBP in the not too distant future!

LR

Sterling fell versus the Dollar and hit its lowest level in nearly three years versus the Euro on Monday as risk averse investors pared back positions in relatively risky carry trades and sold the high-yielding pound.

Falling stock markets and general concern about the health of global financial institutions since the credit crunch has made investors wary of carry trades where they borrow low-yielding currencies like the yen to fund purchases of higher-yielding assets.

Investors will look to October UK producer prices data at 0930 GMT for further clues on the health of the UK economy.

Weaker than expected data would slightly increase expectations for a cut in interest rates in coming months.

VC

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