The Pound slumped for a sixth consecutive day against the Dollar, dropping under 1.7800 earlier in the session, while the UK currency also fell to a fresh record low versus the Euro despite the Prime Minister’s plans to revive the UK property market.

Gordon Brown promised an injection of £1 billion sooner than initially planned in a bid to help the housing market recover from its worst slump since comparable records began 18-years ago. UK homebuilding has fallen into negative territory while a contraction in service sector growth and manufacturing has indicated that the economy stands on the brink of recession.

The government suspended a tax on UK homes bought for less than £175,000 and the exemption from stamp duty will apply for a year starting today and the measure will cost £600 million in lost revenue over the next 12 months.

The downturn in economic growth forecasts has prompted widespread speculation that the Bank of England will begin a series of rate cuts over the coming months and the Pound subsequently declined over 7% in value against the Dollar in August alone.

The UK currency slipped under $1.8000 versus the Dollar for the first time since June 2006 earlier this week and Brown’s vain attempt to inject some sense of confidence back into the market was seemingly met with cynicism with the Pound still reeling from the recent comments by the Chancellor Alistair Darling.

In an interview with the Guardian newspaper, Darling admitted that Britain could face the worst economic slump in 60 years and the dwindling sentiment surrounding the outlook for growth will probably see the Pound slip to 1.7600 before the end of the week.

In terms of economic data, Sterling sentiment was further hampered after a report from the Chartered Institute of Purchasing and Supply showed an index of manufacturing sentiment fell to the lowest level since records began in April 1997.

Nevertheless, the Bank of England are unlikely to reduce borrowing costs this month and that sentiment was echoed in a statement from the Organisation for Economic Cooperation and Development, who said that central banks should keep interest rates on hold at their current levels as they balance faster inflation and weaker expansion.

Although the Euro has breached 1.2300 versus the Pound, the single currency continues to struggle against the Dollar after European producer prices increased by the most in at least 18-years in July as crude oil prices reached a record level before dropping 20% in August.

The 9% increase in prices from this stage in 2007 was the biggest monthly rise since the series began in 1990 and the extent of the increase somewhat vindicates the ECB’s tightening bias on monetary policy even at the risk of a recession.

That sentiment is expected to be reflected in the economic data due for release this morning and the Euro may come under further pressure against the Dollar as the latest GDP estimates confirm that the economy failed to expand in the second quarter while Service sector growth properly slipped further into negative territory.

The sustained drop in oil prices continues to bolster sentiment for the Dollar and crude for delivery in October fell 5% in New York to a low of $105.46 on the session as Hurricane Gustav was downgraded to a tropical storm and missed U.S refineries off the Gulf of Mexico.

The Dollar rallied to the highest level against the Euro in nearly seven months as oil prices tumbled and traders speculation that the Federal Reserve’s next move will be to lift interest rates as the U.S economy outperforms Europe and Asia.

Data Released 3rd September

U.K 09:30 CIPS Services PMI (August)

EU 09:00 Services PMI (August)
EU 10:00 Gross Domestic Product (Q2)
EU 10:00 Retail Sales (July)

U.S 15:00 Factory Orders (July)
U.S 19:00 Fed Beige Book

written by Adam Solomon