The Pound gained for a second day against the Dollar yesterday, rising to a high of $1.8258 during the European session, following reports that Lloyds TSB Group agreed to buy HBOS Plc for £10.4 Billion after share prices in the ailing mortgage provider slumped 85% on Wednesday from the 2007 peak.

The Bank considered bailing out Northern Rock Plc before it collapsed last year and according to a report from the Council of Mortgage Lenders, a combination of Lloyds TSB Plc, based in London, would acquire a 28% share of the UK mortgage market and prevent Britain’s largest provider from succumbing to the worsening global credit crisis.

HBOS had lost almost half its market value in a turbulent week for financial markets that saw the collapse of the fourth biggest U.S investment bank Lehman Brother’s Plc, while the government stepped in to prevent the same fate for American International Group Inc, the biggest U.S insurer.

The current market turmoil shows few signs of abating but the Pound continued its upside momentum against a basket of currencies following a report from the Office of National Statistics, which showed that UK retail sales unexpectedly increased in July.

Sales increased 1.2% after rising 0.9% the previous month as stores attempted to revive spending by offering discounts on clothing and footwear but with unemployment rising by the most in 16-years last month, the pace of spending may dwindle as consumers become worried about their jobs.

Nevertheless, the Bank of England has still refrained from cutting interest rates since April as policy makers attempt to balance the risks to growth against rising inflationary pressures while former BoE MPC member Charles Goodhart said that the Bank will wait until November at the earliest before a likely cut.

The Dollar recorded losses against the Euro yesterday and may extend its decline versus the Pound amid speculation that the U.S government will build an agency to address the turmoil sweeping through financial markets.

The prospect of the U.S Treasury Secretary and the Federal Reserve formulating a “permanent” plan to limit credit market losses saw some sense of confidence return to the market as investors were encouraged to buy high-yielding assets backed by low cost loans from Japan.

The comments from the U.S senator Charles Schumer indicates that the government is assessing the need for a more “comprehensive solution” while he also said that the injection of funds into financial companies could be exchanged for equity stakes.

Elsewhere, the Dollar also came under renewed pressure against the majors after an index of leading economic indicators fell more than forecast while oil prices rose for a second day in New York as the market turbulence boost the appeal of commodities.

Data Released 19th September

GER 07:00 Producer Price Index (August)