Market Report

The pound is poised to drop this week versus the euro and yen on views the U.K.'s interest-rate advantage will narrow and as traders exit carry trades.

The U.K. currency is set to drop for a second week against the common currency after the Bank of England kept interest rates at 5.25 percent while the European Central Bank raised borrowing costs a quarter point, and signaled it may raise rates further.

The European Central Bank raised its benchmark rate a quarter-point to 3.75 percent yesterday and the Bank of England kept its target at 5.25 percent. The ECB will lift its target to 4 percent in June and keep it there until year-end, according to a survey published on March 2nd. The U.K. central bank will raise rates to 5.5 percent in May and hold it there until year-end, a separate survey shows.

Job growth in the U.S. was probably the weakest in two years last month as the economy struggled to overcome weakness in housing and manufacturing, economists said before a government report today.

The projected 95,000 increase in payrolls would follow a 111,000 gain in January and is about half the average number of jobs created in 2006. The unemployment rate probably stayed at 4.6 percent in February, still close to a five-year low.

Today's main data release will be the non farm payrolls from the United States at 13.30 GMT.

DH

Yesterday the Great British pound made a minimal fight back against the majors, as Stock markets curbed a sell-off in the previous session caused by investors unloading carry trades. The pound also found some breathing space from strong UK retail figures released which rekindled speculation over a possible further rise in British interest rates later this year

With keeping interest rates in mind, The Bank of England today sits down for their monthly meeting, regarding UK interest rates. Looking at a Reuter's poll it appears MPC will vote to keep them unchanged for this month.

Another pretty quiet day with regards to Economic Data but at 11.00 from the Eurozone we see German Factory Orders released. In our view we expect these to be better than expected therefore fuelling more speculation of an interest rate hike in the Eurozone.

DH

Yesterday we saw some further losses for sterling against both the Euro and Dollar. This is a continuation from the fallout of investors pulling out of carry trades involving the Japanese Yen.

Former Chairman of the FED yesterday said that there is a one third possibility of a recession in the US this year. Current FED chairman Ben Bernanke said last week he predicts the economy will strengthen this year. Both men have their reasons and are entitled to their opinion, but where does it leave us in trying to understand what is really going on?

Like yesterday there is not much in the way of economic data being released today. We will be looking at the markets from the Far East to see if there is a continuation of the current trend.

Have a good day, and try not to wait and watch the markets fall even more before trading!!

DE

From Asia this morning we have seen a rapid exit of risky carry trades against a high yielding British Pound. Sterling has moved two percent against the Yen, which has been one of the market's favourite carry trades with Japan's interest rates at just 0.5 percent compared to Britain's 5.25 percent.

This move has run parallel with our view of that GBP would weaken against Euro and the Greenback. We have been calling for Euro and Dollar buyers to act sooner rather than later. We are still of the same opinion that GBP will continue to weaken due to an additional factor of the Bank of England leaving interest rates unchanged. This is a bit of a moot point at the moment with the inflation rate so high, however with the nervousness in equity markets and the slide in GBP on the currency markets will mean UK rates remain on hold.

On the day-to-day markets there is very little data out to suggest wild movements although from the states at 15.00 we see the release of ISM non manufacturing figures and focus will remain on the equity markets for direction.

Final thought of the morning another BIG BANK released their profit figures of £5.5 Billion. WHAT EXCHANGE RATES DO THEY QUOTE???

DH

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