Market Report

The pound fell for a third day against the dollar and the Euro, its longest losing streak since July (heading for its biggest weekly drop against the USD since June) after the Bank of England kept its benchmark interest rate unchanged yesterday and Tony Blair did nothing to calm the uncertainty.

This current political unrest is creating a testing time for the Pound. With the next hike in the interest rate looking as if it has already been priced in by the market, as we have been saying all week, now is a good time to sell Sterling!

USD sentiment is positive at present, with most of the recent data already written into the rate we may see the Dollars rally continuing for a while yet.

Elsewhere we have seen the South African Rand slide this week on concerns that the rate of growth of the economy is likely to fall and Japanese officials have given the JPY a boost by suggesting that inflation is on a rising trend, as the economy heads for its longest expansion since World War II.

VC

The pound suffered its worst day against the Euro in over a month yesterday after seven labour MPs resigned, this is due to the fact the prime minister will not give a definite date for his departure. The one thing that is guaranteed to cause jitters in the markets is political uncertainty. Today sees the Bank of England make its decision on interest rates; this is widely expected to be kept on hold until later in the year.

The interest rate picture is likely to continue to favour EUR over GBP into next year and GBP EUR will remain under pressure on any rallies.

The slide in GBP against the USD may face some resistance today as it is expected that San Francisco Fed president Yellen will signal that the pace of growth in the economy is slowing. However the speculative market is still long and there are further positions to be unwound as the prospect of 2.0000 in the near term fades.

VC

Good morning, the last 24 hours has proved to be quite a difficult one for the pound seeing a reversal in its recent gains. The release yesterday of an industry report showed a drop in consumer confidence to its lowest level since may 2004. Should confidence fail to bounce back we may see a further weakening of the pound over the coming months. Weakness in the UK service sector has also been highlighted with a slip back in the CIPS survey data.

We seem to be entering a period of position adjustment, most noticeable in the carry trades, but with all the bad news priced into USD sentiment and all the good news priced into GBP sentiment any underperforming data releases from the UK could lead to a more protracted GBP decline.

The political uncertainty surrounding Tony Blair's step down is also likely to be GBP negative and if ambiguity over the leadership of the country continues GBP is likely to suffer.

The Dollar has regained some of the losses it has suffered over the last few weeks. With recent negative data already priced into the rate we may now start to see the Dollar strengthening across the board.

VC

Yesterdays US bank holiday for Labor Day provided markets with no new impetus for directional moves in currencies. A couple of comments out over the weekend from the French Trade minister in relation to the necessity for China to relax further its crawling currency peg, gave the USD a small boost that we have seen extended slightly this morning. Asian strength is also evident in the JPY with a few commentators calling for a further rate rise from Japan.

New Zealand suffered overnight as the ratings agency S&P stated that the New Zealand AA+ rating is in vulnerable due to the country's current account deficit woes.

Closer to home we have seen some GBP weakness early this morning and although economic commentators continue to express their concerns for the path of inflation the weight of long positions is weighing heavy on GBP, particularly vs the USD and we would anticipate a further slide into tomorrow. EUR has been more resilient against both GBP and USD and the overall picture there looks strong.

The data of note to look out for this morning is the BRC Retail Sales Monitor at 11am as any drop from the previous level will again highlight the potential for GBP economic and consumer recalcitrance, and should see GBP lower.

Have a great day.

VC

Good morning all, the current plight of the Dollar seems to be a negative one at present, this is due to the slow down in housing and consumer spending with the prospect of an interest rate hike now highly unlikely any time soon. There are no Data releases from the United States due to the Labour Day holiday.

Sterling looks like it may continue strengthening with the prospect of another interest rate hike before the end of the year. The pound moved higher against both the Dollar and the Euro after a report from the Nationwide Building Society said that house prices advanced at the fastest annual rate since April 2005 and the central bank said the number of home loan approvals rose to a six month high. The Bank of England will announce its next rate decision on the 7th of September and will be very closely watched for further signs of MPC concerns over inflation and the associated problems of the measurement of the true level of inflation as mooted by David Smith in yesterdays Sunday Times. There are no major data releases today.

VC

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