Market Report

The pound headed for its longest winning run versus the dollar in more than a year on speculation the Bank of England will keep raising interest rates while the Federal Reserve stays on hold. The U.K. currency climbed to a 26-year high this week as the Federal Reserve trimmed its forecast for economic growth. A report today may show the U.K. economy maintained its pace of expansion in the second quarter, according to a survey of economists. Sterling was last at such lofty levels against the USD in 1981, the year Roger Moore played James Bond in "For Your Eyes Only", and U.S. President Ronald Reagan and Pope John Paul II both survived assassination attempts, I suppose I am showing my age now.

Have a great weekend.

VC

Sterling slipped from its 26 year peak against the Dollar after the minutes from last month's Bank of England's Monetary Policy Committee (MPC) meeting showed a split vote over this month's widely expected hike in interest rates.

However the initial slippage was limited by general Dollar weakness, which fell to 12 year lows against a basket of major currencies - because of concerns over the US subprime mortgage market.

Sterling was also boosted by UK employment data. Whilst average earnings growth was subdued in the three-months to May the number of people claiming unemployment benefit fell by more than expected in June.

The MPC minutes showed a 6-3 vote in favour of this month's rise but did not materially alter expectations for another rise later this year. After yesterday's release analysts said that the next major focus will be the Bank of England's quarterly inflation report - out in August.

UK retail sales figures (year on year) are released this morning - an important barometer of consumer confidence.

RL

Yesterday Sterling extended gains against a broadly weak dollar. The dollar fell across the board, particularly against higher yielding units such as sterling, and New Zealand and Australian dollars.

The pound has been among several major currencies taking advantage of the greenback's general depression in recent sessions amid concern weakness in the U.S. sub-prime mortgage and credit markets could spread to the broader economy and herald a cut in U.S. interest rates. Investors have started pricing in a small probability of U.S. rates being cut this year and at least one more rate hike from the Bank of England to 6 percent.

Sterling's latest spike higher comes even as merger and acquisition-related talk in financial markets would appear to put downward pressure on the currency.

This morning at 09:30, the CPI (consumer price indices) for June is released. We expect this to increase up 0.2% fuelling further speculation of increased interest hike in the UK.

From the Eurozone today the main piece of data is the GERMAN ZEW, released at 10.00. This is expected which we expect to edge lower again to 19.0 (in line with the consensus), down from 20.3 in June and 24 in May (this year's high). This is showing that the Eurozone largest economy may have peaked and is starting to slow down.

Then later this afternoon from across the pond we see the release of their CPI figures. This may offer the lifeless Greenback some support. It is expected to increase up 0.1%.

Plenty going on today so enjoy.

DH

Last week saw EUR/USD reach record lows, and GBP/USD reach 26 year lows. But what has this week got in store for us?

There is no data or events coming out today in the UK, but later in the week we have CPI on Tuesday and the July MPC minutes on Wednesday. These are both important as both can signal the direction and possible timing of the next interest rate hike (if there is going to be one!).

We only have the HICP at 10:00 from the Eurozone today, but the highlight of the week is the German ZEW economic expectations on Tuesday.

From the US we have the July Manufacturing data at 13:30, with the release of CPI on Tuesday and the minutes of the FOMC on Thursday.

Last night Brazil beet the favourites Argentina in the Copa America final. Lets hope the England Cricket team can beat India at Lords this weekend.

DE

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