The Pound’s unrelenting decline against the majors continued yesterday as the UK currency fell below $1.8000 versus the Dollar for the first time since April 2006 following reports that mortgage approvals had slumped to the lowest level in nine years.

A report from the Bank of England illustrated the deteriorating outlook for the economy after UK banks approved just 33,000 home loans in July, the fewest number since comparable records began in 1999, and the squeeze on lending is curbing growth and seen house prices fall by the most since at least 2001.

Earlier in the session, a separate from Hometrack Ltd showed that the average cost of a home in Britain slipped 5.3% from this stage in 2007 and the tone of the accompanying statement suggested that a recovery in prices is “still some way off.”

The UK Prime Minister, Gordon Brown, is set to unveil plans this week in a bid to shore up the economy as the Bank of England struggles to balance the escalating threat of a recession against the fastest pace of inflation in a decade.

The slump in housing and subsequent impact of rising consumer prices on the broader economy has led to a collapse in support for Gordon Brown as support for the Labour Party falls to the lowest since it took office.

The Pound also plummeted to the lowest level on record against the Euro, breaching below 1.2300, amid speculation of a UK interest rate reduction and the short-sighted, poorly timed comments from the Chancellor of the Exchequer Alistair Darling.

The Confederation of British Industry reported that growth in UK manufacturing contracted for a fourth month in a row as Darling told the Guardian Newspaper that that the economy faces the worst economic slump in 60 years.

The Pound fell as much as 1.2% to 1.7995 versus the Dollar while the UK currency looks poised to record further losses against the Euro as we build up to the Bank of England interest rate announcement on Thursday.

The renewed optimism surrounding the Euro is gathering momentum amid suggestions that the European Central Bank will probably keep interest rates on hold at the highest level in seven years while the accompanying statement may even lean towards an increase in borrowing costs.

The recent flash estimates for GDP in the second quarter has shown that growth in the European economy fell into negative territory and the ECB’s relentless stance on inflation will probably prolong an economic slump.

The Euro again struggled to stem the flow of losses against the resurgent U.S Dollar after retail sales in Germany declined for a second consecutive month in July as rising prices and deteriorating growth prompted consumers to rein in spending.

Sales fell 1.5% from the seasonally adjusted figures for June and the drop was way in excess of economists initial 0.3% forecasts as the risk of a U.S led recession continues to gather pace as confidence in the economy plunged to the lowest level since 2003.

The Dollar has risen to the highest level since June 2006 against the Pound as the U.S currency was buoyed by news that crude oil prices fell to the lowest level in over four months after Hurricane Gustav weakened and eased concerns over the threat to production.

The recent mixed bag of economic data has failed to curtail the Dollar’s upside momentum against the majors but the U.S currency may be tested today as the ISM manufacturing index is expected to sow that growth slipped in negative territory last month.

Elsewhere, the focus will switch to the monthly U.S employment report on Friday where the Labour Department expected to confirm that payrolls fell in August for the eighth consecutive month as employers slash 75,000 jobs.

Data Released 2nd September

EU 10:00 Producer Price Index (July)

U.S 15:00 Construction Spending (July)

U.S 15:00 ISM Manufacturing (August)

written by Adam Solomon