Market Report

Good morning all,

Sterling has seen a consolidation over the last few days after last week's spike. Yesterday's terrorism threat had a relatively muted impact on Sterling despite the negative sentiment and considerable drop in equities. GBPUSD is now comfortably back below the 1.90 level and I would suggest that as the market focus shifts away from the woes of the US over the coming week, it is likely to pay closer attention to the economic wobbles elsewhere around the world and give the USD a temporary reprieve. Japan is a clear example of this overnight releasing Q2 GDP growth at half the expected rate.

Today sees the release of the Retail sales figures from the United States these are a very good way of showing investors the state of the U.S economy. We believe that the figures released today may well prove to be a good one for the Dollar, and we could see a continuation in the Dollar recovery.

Have a good weekend.

NS

With the Federal Reserve Bank leaving rates on hold this month it was a quiet day for the Dollar yesterday. FED Chairman Bernanke has stated that he believes that lagged effect of previous rate hikes will eventually put the brakes on inflation. This in my opinion is risky as there seems to be no slowdown in inflation as of yet but at the same time rate hikes need to be balanced against the marked slowdown in economic activity.

Today sees the release of the Trade Balance from the United States this is expected at around $64.5 billion deficit should this number come in as expected or lower then the USD should be granted a more extended reprieve. Also today we see the release of the Jobless Claims from the United States this is expected to be around 315k and will be scrutinised closely for signs of a bounce back from the disappointing Unemployment data at the end of last week.

After overnight events Sterling has weakened slightly this morning. Despite some market commentary of further rate hikes as early as November my opinion is that further rate hikes are unlikely in the near term and GBP is vulnerable to further short term declines.

NS

Last night the FOMC kept rates on hold at 5.25%. With rates staying unchanged this appears that the Fed is comfortable with its view that moderating growth will push inflation lower. In the statement release after the Fed made no reference to rising unit labour costs and made no changes that would suggest it was leaning toward hiking rates in the near term possible. The vote was 9-1 with Fed President Jeffery Lacker the one looking for a hike to try and sustain inflation pressure due to high commodity and energy prices.

As predicted German and Italy's industrial production figures was slightly up from the previous month but little impact on the market yesterday.

Today will be a focus on the early release of the UK's Trade data due out at 09.30 which may not be pleasant reading after the strength of domestic demand and a softer international environment figure possibly around £-6.6bn. Also at 10.30 we have the UK quarterly inflation report which should give us further insight into the BoE decision to hike interest rates last week.

No major data release from the US today.

DH

Yesterday we saw continued support for GBP as we hit an 8 month high in GBP/EUR and a 15 month high in GBP/USD (cable). It seems that this support is continued from last weeks unexpected Bank of England interest rate hike which saw the base rate moved up to 4.75bp. There seems to be some trepidation over whether this was the correct decision which may be justified in up and coming inflation report and also the BoE minutes shall give us another indication due out on the 16th Aug. Today's press has begun to pick up on the impact of rate rises on the Manufacturing sector and with consumer demand set to temper in the months ahead the UK economies reliance on manufacturing and investment is likely to further come to the fore.

For today at 11.00 we have Germany Industrial Production Figures due which are expect to be slightly weaker than previously at around 5.7% down form 5.9%. This may weaken the Euro slightly but is likely to have a have limited impact on the markets today as we await the Fed.

The impetus that everybody is waiting for is tonight at 19.15 GMT when the FOMC (of the Federal Reserve) makes its decision on US interest rates. After 17 continuous rate hikes we expect the decision to remain unchanged at 5.25% but the consensus is that there are further hikes to come after interest-rate futures yesterday showed around a 24% possibility hike by September. An unchanged decision from the fed this evening may lead to some downward pressure on the USD, however a high probability of a pause is now priced in and now the risk of a bigger move is a higher USD either from a hike or strong retail sales later in the week.

Have a great day

DH

Good morning all, last week saw the Dollar weaken significantly due to a combination of factors. Firstly the fact the United States may be coming to the end of the current cycle of interest rate hikes, which remains to be seen as the Federal Reserve Bank will decide tomorrow if they are going to raise the rate once again or leave it unchanged. The markets at the moment seem to believe the rate will remain unchanged, should this be the case it will be the first time interest rates have remained the same for over two years.. The current situation in the Middle East plus rising oil prises have not helped the Dollar recently plus poor figures released on Friday which saw the Dollar fall against Sterling and looks to remain weak at least until tomorrows announcement.

After last weeks shock interest rate hike by the Bank of England, Sterling has gained in strength and we believe this is a very good time to buy those Euros. The European Central Bank also raised their interest rates by a quarter of one percent but as this was widely expected there was far less of an impact on the markets.

There is little data of any significance released from Europe or the United States today so all eyes will be firmly fixed on tomorrows announcement on interest rates from the United States should there be any surprises then the Dollar could be in for another interesting week.

Have a good day.

VC