Market Report

Sterling slipped this morning to its lowest level against the Dollar in over a month as the shift in global currency markets to unwind carry trades amid lingering liquidity and credit concerns continued.

The move closer toward $2.00 came in early London trade as dealers adjusted positions ahead of July UK inflation data. Sterling has lost 1 percent against the resilient dollar so far this month as fears of a global credit crunch have pushed investors to cut back on their bullish bets in favour of high-yielding currencies like sterling in favour of "safer-haven" units like the yen.

The Bank of England's refusal to join the global central bank push to flood short-term money markets with cash in order to stave of a liquidity freeze may have kept sterling deposit rates stubbornly high but the pound has still softened.

It has lost less ground than other high-yielders like the Australian and New Zealand Dollars. But further weakness will bring the psychological $2 level -- once a seemingly impregnable barrier on the upside -- into view as a key support level.

Data has taken a back seat to global credit, money market and equity jitters recently but all eyes will be on UK July inflation data at 0830 GMT for clues on what BoE policy may hold in the months ahead.

Annual inflation is expected to ease 2.3 percent from 2.4 percent in June.

Consumer price inflation has been easing back toward the BoE's target level of 2 percent for a few months now. But the Bank strongly hinted in its Inflation Report last week at least one more rate hike to 6 percent was likely in order to ensure that happens.

Like other markets such as the Dollar and Euro, short-term sterling deposit rates have surged in recent sessions as liquidity worries stemming from sagging U.S. subprime mortgage markets have forced banks to pay up for cash.

But while the European Central Bank and Federal Reserve have pumped in billions of Euros and Dollars to bring these rates down toward target levels, the BoE has held fire.

DH

On Friday the Equity markets fluctuated violently with London and Europe having their worst one day falls in four years.

Todays highlight is the PPI from the UK at 9:30 and the Retail Sales figures from the US at 1:30.

On Wednesday we have the CPI from both the UK and the US, whilst on Thursday we have the release of Retail sales figures from the UK.

Whilst we would normally find some space in this report to mention sport, i find it very hard to find anything positive to write about the weekends sport!

Have a good week.

DE

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