Daily Insight

The Pound slumped against the majority of the major currencies yesterday and the UK currency suffered the sharpest intraday loss versus the Dollar in nearly 16-years, following reports that the U.K government nationalised Bradford & Bingley Plc and seized control of the troubled lender.

The escalating financial crisis has seen banks curtail lending and Bradford & Bingley Plc, which represents Britain’s largest buy-to-let mortgage provider, is just the latest bank to succumb to the credit squeeze and follows the nationalisation of Northern Rock Plc last year.

The UK Treasury will take over Bradford & Bingley’s £41 billion in mortgage loans and in return the government will get rights to any gains as the bank sells off its assets one piece at time, including personal loans and its headquarters in Bingley.

The greatest challenge for the UK government will be to manage the bank’s bad debt while compensation rules in the UK mean that other financial firms will have to cover Bradford & Bingley’s £14 billion insurance policy to protect its depositors and a short-term loan from the BoE will initially cover the amount falling on the banks.

The break-up of Bradford Bingley has already begun with Banco Santander SA, Spain’s biggest lender, willing to pay £612 million for the 197 branches and £20 billion of deposits as the survivors of the global credit crunch recoil at the prospect of swallowing all the risks facing weaker competitors.

Bradford & Bingley is the second UK lender to fall under Santander, which became Britain’s second biggest mortgage lender and third largest deposit holder, after the Spanish bank acquired Alliance & Leicester Plc for £1.26 billion in July following its 2004 takeover of Abbey National for £9.2 billion.

The Chancellor of the Exchequer Alistair Darling made a statement prior to the opening bell and UK stocks subsequently slumped to a three-year low as the seizure of Bradford & Bingley Plc triggered a sell-off in bank shares.

The second largest UK bank, Royal Bank of Scotland Group Plc, also slumped by the most since 2000 after Belgium’s Fortis bank received a rescue package, while Man Group Plc plunged 18% after the hedge fund manager said that earnings will be lower than in 2007.

The UK currency also declined against a basket of currencies, including the Euro as a separate report from the British Banker’s Association painted a grim picture for the UK property market as mortgage approvals tumbled in September with banks approving the fewest number of home loans since records began in 1999.

The Pound declined 2.5% against the Dollar by the close of trading last night to record the biggest one day slump since June 4th 1993 while UK government bonds rallied as investors sought the safest securities.

Elsewhere, UK house prices fell by the most in at least seven years in September as the global financial crisis choked lending and the average cost of a home in Britain slipped 6.2% from this stage in 2007, according to a report from Hometrack Ltd.

The Euro rallied higher against the Dollar yesterday while the single currency also took advantage of broad Sterling weakness to test 1.2500 by the close last night despite European stocks plunging the most in eight months after bank bailouts accelerated and the $700 billion plan to rescue financial institutions failed to unlock money markets.

In addition, the Euro also stood firm as German stocks dropped by the most in eight months after the government and a group of banks had to bailout Hypo Real Estate Holding AG with a €35 billion loan guarantee.

Hypo Real Estate, Germany’s second biggest commercial property lender, posted the steepest slump since its initial public offering in 2003 after receiving emergency funding and saying that it plans to scrap its 2008 dividend.

In terms of economic data, the Euro also shrugged off reports that European retail sales fell for a fourth straight month in September as higher consumer prices and the deepening credit squeeze weighed on confidence.

The Purchasing Managers index indicated that the measure of sales in the Euro-region fell to a reading of 46.2 from 47.7 in August, while a figure below 50 indicating contraction as banks become more reluctant to lend while the U.S financial turmoil spreads to Europe.

The disruption and volatility sweeping through financial markets has seen the U.S government deliberate over the proposed $700 billion rescue plan with some Republicans arguing on whether the move would actually help financial markets in the medium to longer term.

However, reports over the weekend indicated that Congressional leaders had finally agreed on the terms of the bailout with the funds intended to bring some stability back to the market as the government inherits tainted assets from U.S banks.

Nevertheless, the financial rescue plan, which is intended to restore some sense of stability back to the market, collapsed last night as the House of Representatives turned down the proposal despite strong backing from the Bush administration and Congressional leaders on both sides.

U.S stocks and commodity prices plummeted as the House rejected, by a vote of 228 to 205, the $700 billion measure to authorise the biggest government intervention in financial markets since the Great Depression.

The Dow Jones industrial average fell 6.98% on the session in New York to record the biggest point drop in history while the S&P 500 index fell 8.4% by the close last night, the biggest daily slide since October 26th 1987.

In the aftermath of the legislation’s defeat, both Republicans and Democrats were blaming each other as a member of the House, Adam Putnam, blamed Democratic House Speaker Nancy Pelosi for setting a “partisan tone”.

Data Released 30th September

U.K 00:01 Gfk Consumer Sentiment (September)

U.K 09:30 Current Account (Q2)

U.K 09:30 Final Gross Domestic Product (Q2)

GER 09:00 Unemployment (September)

EU 10:00 Final HICP (September)

U.S 14:00 Case Shiller House Price Index (July)

U.S 14:45 Chicago PMI (September)

U.S 15:00 Consumer Confidence (September)

written by Adam Solomon

The Pound tumbled against the Dollar this morning, suffering the largest intraday loss in over 15-years following reports that the U.K government nationalised Bradford & Bingley Plc and seized control of the troubled lender, which represents Britain's biggest buy to let mortgage provider and the U.K's eighth largest bank.

The UK currency also fell against a basket of currencies, including the Euro as a separate report on UK mortgage approvals painted a grim outlook for the property market with banks approving the fewest number of home loans since records began in 1999.

The crisis in credit has curtailed lending and Bradford & Bingley Plc are just the latest bank to succumb to the credit squeeze following the nationalisation of Northern Rock Plc last week and the move may further undermine UK consumer confidence as the bailout will be funded with taxpayers money.

Elsewhere, the disruption and volatility sweeping through financial markets has seen the U.S government deliberate over the proposed $700 billion rescue plan with some Republicans arguing whether the move would actually help stabilize financial markets.

However, reports this morning indicate that Congressional leaders have finally agreed on the details of the plan with the funds intended to bring some stability back to the market with the government inheriting tainted assets from banks.

Nevertheless, the focus this morning has been the nationalisation of Bradford & Bingley Plc and the Pound has dropped 2.3% already this session, the biggest daily decline since June 4th 1993 while UK government bonds rallied as investors sought the safest securities.

Data Released 29th September

U.K 09:30 Consumer Credit (August)

U.K 09:30 Mortgage Approvals (August)

EU 10:00 EC Business Climate (September)

EU 10:00 EC Economic Sentiment (September)

- Consumer / Industrial / Services

U.S 13:30 Personal Income / Consumption (August)

written by Adam Solomon

The Pound remained largely unchanged against the Dollar last night but the UK currency relinquished much of the earlier gains overnight as U.S lawmakers argued over the terms of the financial rescue plan, while House Republicans undercut the Bush administration and left it to congressional leaders to thrash out a compromise.

The prospective $700 billion bailout of the U.S financial system is still yet to be finalised, while the Bank of England, along with the majority of Central Banks, have said that they will allow institutions to borrow Dollars from them for a week in a fresh effort to calm the turmoil that has engulfed money markets.

The Pound is largely reactive to news coming out of the U.S and until a deal is agreed we can expect an increased level on intraday volatility and although we have fallen away from the Fibonacci retracement level above 1.8700, the Pound is still trading 0.4% higher versus the Dollar this week.

The run of increases represents the longest run of gains since May while the Pound has also risen well above 1.2600 versus the Euro amid concerns that the Euro-zone economy slipped into negative growth in the second quarter as Finance Ministers express concerns that the market turmoil will damage the global economy.

The UK Prime Minister, Gordon Brown, urged Congress yesterday to approve the plan for financial companies and Brown is due to meet President George W Bush today to discuss the escalating threats to the world economy and the best course of action to alleviate the problem.

Money market rates have soared higher in recent weeks as banks curtail lending while concerns are growing that the deepening financial crisis will increase unemployment as HSBC Holdings Plc cut 1,100 jobs in its global banking and markets division.

Nevertheless, the Bank of England have so far failed to act in terms of reducing borrowing costs and MPC member, Kate Barker, said yesterday that the threat of the fastest pace of inflation is a decade may continue despite the 30% drop in oil prices since July.

The tone of her statement seems to suggest that Barker may be reluctant to follow her colleague and staunch dove David Blanchflower in calling for an immediate and aggressive cut in interest rates as early as next month.

The UK has a significant stake in the outcome of the U.S financial market rescue plan and while the details of the bailout are still yet to be clarified, the stability proffered to the global credit market could potentially help avoid a severe global recession.

The UK economy is on course for its first recession since the early 1990s as the major slum in housing and contraction in household spending brings growth to a grinding halt and the volatility sweeping through credit markets means that Bank’s are not prepared to lend while rising default rates and expensive mortgage will prevent a recovery in the property market.

Another concern for Sterling sentiment is that the overnight index swaps are pricing in over 100 basis points of monetary easing over the coming year as policy makers weigh up the crippling outlook for growth and the potential for consumer price inflation to subsequently undershoot the Central Bank’s 2.0% target.

The Euro has made robust gains against the Sterling on Thursday but the single currency again failed to consolidate on the recent move against the Dollar amid surprisingly bearish comments from ECB policy maker Nout Wellink.

Not sharing the same optimism as his colleagues, Wellink insisted that market uncertainty and volatility will last for ‘some time’ and although the ECB’s governing council members have advocated the need to maintain risks to price stability, the deepening financial crisis may just create a division within the Central Bank.

Data Released 26th September

GER 07:00 Import Prices (August)

U.S 13:30 Final Gross Domestic Product (Q2)

U.S 14:55 Michigan Sentiment (September Final)

written by Adam Solomon

The Pound resumed the upside momentum against the Dollar yesterday while the UK currency also rallied higher versus the Euro after Bank of England policy maker Andrew Sentence said that the MPC must temper its response to the financial crisis and focus on the inflation mandate.

Policy makers have faced a difficult balancing act in recent months, balancing the upside threat of inflation against the looming threat of a recession but in a speech yesterday, Sentence warned that "allowing the economic slowdown to develop into a deflationary spiral" would not help achieve the government's 2.0% target.

The Pound climbed to a high of $1.8658 versus the Dollar in early trade yesterday as the market tentatively approaches the Fibonacci retracement level above 1.8700 despite an increased probability that the Bank of England will lower interest rates in its October meeting.

Investors are betting on an 85% chance of a reduction in October, from 60% on Tuesday and just 45% this time last week, according to Credit Suisse Group's index of derivatives.

The 30% drop in oil prices has yet to feed through to the broader economy and interest rates have unchanged at 5.0% since April but concerns that the mounting bank losses will push the economy into a recession may mean that that MPC has little choice but to begin an aggressive period of easing.

The escalating financial crisis may see unemployment rise by as much as 0.4% this month, which translates as roughly 125,000 people losing their jobs while the same article in the Guardian newspaper also highlighted that slowing growth may cause inflation to undershoot the 2.0% target.

The declining sentiment surrounding the outlook for the Euro-zone continued yesterday German consumer confidence unexpectedly rose for the first time in five months after falling fuel costs left people with more to spend of food and clothing.

The price of oil has fallen almost a third from its record high in July but at more than $100 a barrel, the cost still remains 30% from a year ago and that is eroding consumer's spending power.

The Euro recorded sharp intraday losses against the Pound yesterday but the single currency continues to benefit from broad Dollar weakness as the focus this morning falls on the M3 index of money supply, which is forecasted to decline 0.3% in August.

The declining appetite for the Dollar continued yesterday as the U.S currency fell across the board after the U.S President George W Bush said that the economy may a "painful" recession over the coming as traders bet on a Fed interest rate cut next month.

The Dollar has struggled to revive sentiment since the events of last week and the U.S currency may continue to struggle today as a government report is expected to show that home sales dropped in August, extending the worst decline in housing for 17-years.

Data Released 25th September

GER 07:00 Gfk Consumer Confidence (October)

EU 09:00 M3 - Money Supply (August)

- 3 Month Moving Average

U.S 13:30 Durable Goods Orders (August)

U.S 13:30 Initial Jobless Claims (w/e 19th September)

U.S 15:00 New Home Sales (August)

written by Adam Solomon

The Pound bounced back against the Euro yesterday while the UK currency also held on to the recent gains made versus the Dollar amid concerns that the U.S government’s plan to buy $700 billion in bad debt will fail to bolster the global economy.

UK stocks plummeted, led by banks, as the FTSE 100 Index fell 1.9% from the previous day’s close but the Euro bounced back above 1.2600 against the Euro last night as the shift in dialogue from the ECB’s chairman Trichet prompted investors to speculate that the hawkish Central Bank will moderate its stance over the coming months.

The Pound recorded an all time low at 1.2218 versus the Euro earlier this month but the deteriorating outlook for growth in the Euro-zone has led to concerns that Germany slipped into a recession in the second quarter, while falling commodity should feed through to the broader economy and ease inflationary pressures.

The daily fundamentals have paled in significance in recent weeks as the fallout from the U.S government’s decision to intervene in an unprecedented act to restore stability dominates current trading conditions and the Pound shrugged off reports that UK mortgage approvals fell to the lowest level in a decade.

The report from the British Bankers’ Association showed that bank’s granted the fewest number of loans for home purchases since record began in 1997 as falling property values and tighter credit conditions deterred buyers and brought the housing market “to its knees”.

A separate report from Rightmove Plc earlier this week showed that prices had declined across the country while the 64% drop in mortgage approvals this year is just the latest indication that the slump in the UK property market shows few signs of abating and that may force the
Bank of England to cut interest rates for the first time since April.

The Pound is back within the well established trading range versus the Euro but the dwindling sense of optimism surrounding the outlook for the Euro-zone may see the pair test the resistance above 1.2800 in the short-term but a break below 1.2450 would signal a further move to the downside.

In the smouldering aftermath of last week’s near financial meltdown, the declining appetite for the Euro could be considered somewhat surprising considering that none of the major European Banks hit the headlines expressing severe difficulties to the same extent that hit Lehman Brothers Plc and threatened to consume HBOS Plc.

Nevertheless, the single currency recorded losses against a basket of currencies as a report from the Royal Bank of Scotland showed that Europe’s manufacturing and service industries contracted at the fastest pace in over six years this month.

The index dropped to a reading of 47.0, the lowest since November 2001, from 48.2 in August with a reading below 50.0 indicates contraction as the seizure of credit markets intensified and slowing overseas demand saw companies rein in production.

The sustained slump in European manufacturing and service sector growth indicates that the economy isn’t recovering after shrinking in the second quarter for the first time in a decade while the ECB has cut its growth forecast for this year to just 1.4%.

However, the Central Bank are unlikely to lower interest rate immediately and will probably wait for the 30% drop in oil prices to feed through to the economy and bring consumer price inflation back from the highest level in 16-years.

The focus this morning will fall on the German Ifo sentiment index for business confidence in the region and the report is expected to confirm that expectations worsened between August and September, reflecting the dwindling outlook for growth.

The Dollar continues to struggle against the majors as economists debate on whether the government’s proposal to inject $700 billion in the failing U.S mortgage market will fail in bolstering the economy as the national debt increases by a staggering $1 trillion.

The dwindling appetite for the U.S currency is likely to continue in the short-term as the plan faces congressional scrutiny that threatens to delay passage of the rescue of financial institutions while the Senate will consider testimonies from the Fed Chairman Ben Bernanke and U.S Secretary Henry Paulson.

The tentative price action surrounding the Dollar yesterday indicates that the market is waiting for some direction regarding the details of the bailout but a separate report from Morgan Stanley forecasted that short-term Dollar pressure will subside as the market absorbs the
government’s proposal.

Data Released 24th September

U.K 11:00 CBI Distributive Trades Survey (September)

EU 09:00 Current Account (July)

GER 09:00 Ifo Index (September)

U.S 15:00 Existing Home Sales (August)

written by Adam Solomon

The Pound continued its upward surge against the Dollar yesterday as the UK currency peaked at 1.8638 by the close of trading last night as the impact of the Fed’s decision to inject $700 billion into on money market on Friday continued to hamper Dollar sentiment.

Elsewhere, the Pound actually declined against the majority of the major currencies following reports that UK house prices fell for a fourth straight month in September as the global credit crisis intensified while lenders imposed tighter lending restrictions on borrowers amid reported losses in excess of £250 Billion in the past year.

According to a report from Rightmove Plc, the average asking price for home in Britain fell 1% this month while the commercial director of the UK’s largest property website, Miles Shipside, said that “the housing market is on its knees and will remain so until financial institutions address the disastrous state of mortgage funding markets”

The deteriorating outlook for the UK property market shows few signs of improving and home owners face painful adjustments over the coming months as the market reels from the recent news that HBOS Plc agreed to a takeover by Lloyds TSB Group Plc after the share price in the struggling lender halved last week.

Home values have slumped by the most in twenty years over the past year while the worsening financial crisis destroyed the value of HBOS Plc and added to concerns that the UK economy entered a recession in July, leading to speculation that the Bank of England will cut interest rates in November.

Lenders are struggling with higher borrowing costs in interbank lending on concerns about escalating losses linked to the collapse of the U.S housing market but the U.S Treasury have announced a $700 billion rescue plan to buy troubled assets and bring the global economy back from the brink of a financial meltdown.

In a gesture of intent, the UK government suspended tax on home purchases of less than £175,000 earlier this month but the number of new listings per estate agent has still fallen to a record low and it may require an aggressive easing in borrowing costs to revive the ailing the UK property market.

The Euro continued to make robust gains against the Dollar yesterday while the single currency also took advantage of broad Sterling weakness, closing towards the daily low at 1.2535 last night after ECB board member Juergen Stark supported the Central Bank’s neutral stance on monetary policy.

In a statement to journalists, Stark said that lowering the benchmark interest rate would not “solve problems in the financial markets while the ECB will remain focused in their sole mandate to ensure that risks to price stability do not become entrenched in the broader economy.

Nevertheless, Stark did acknowledge that economic growth in Germany remains subdued throughout the third quarter as the impact from the collapse of the U.S mortgage market reverberates through money markets and continues to hamper growth in the global economy.

In a sparse week of economic data, the focus this morning will fall on the flash estimates for European manufacturing in September and the report is expected to confirm that growth slipped further into negative territory this month while industrial orders also slumped in July as demand from overseas declined.

The Dollar recorded the biggest single day drop in history against the Euro yesterday while the U.S currency also declined against a basket of currencies amid concerns that the U.S government’s plan to buy $700 billion in troubled assets from financial firms will inflate the budget deficit and increase the national debt by $1 trillion.

The Dollar has endured the longest stretch of declines since June as the Treasury’s proposal to bail out banks from the credit crunch failed to restore investor’s confidence in U.S assets.

In addition, U.S stocks also plunged and traders returned to commodities as a safe haven with oil prices rising $10 in New York to record the biggest single day increase in history.
Data Released 22nd September

EU 09:00 Flash PMI – Manufacturing (September)

- Services

EU 10:00 Industrial Orders (July)

written by Adam Solomon

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)

The Pound continued to test the resistance above 1.2600 versus the Euro but the UK currency suffered a sharp intraday loss versus the Dollar, falling by the most in two weeks on the session, after the degree of volatility sweeping through financial markets continued and oil prices tumbled a further $4 in New York.

In addition, the Pound also came under renewed selling pressure after the Bank of England Governor Mervyn King, said that inflation will peak in the short-term and the slow ‘sharply” in 2009, boosting the probability of an interest rate cut over the coming months.

The Pound also recorded losses against a basket of currencies, snapping an eight day winning streak versus the Euro as King wrote a letter of explanation to the Chancellor of the Exchequer Alistair Darling, saying that inflation will peak at 5.0% this year.

The annual pace of consumer price inflation exceeded the government’s 2.0% target and jumped to 4.7% year-on-year in August, the most since records began in 1997, while near 40% drop in oil prices has yet to feed through to the broader economy and ease price pressures on the stagnant UK economy.

Nevertheless, the tone of King’s comments yesterday suggests that the Bank of England are prepared to act amid the escalating financial crisis and as inflationary pressures begin to ease, the Bank of England will then have the scope to begin cutting interest rates.

The Pound subsequently declined to a low of $1.7796 before the opening in New York, falling 1.2% from the previous day’s close as the market began factoring in the probability of an impending UK rate reduction while King stressed that the MPC will re-evaluate their current stance in the next monthly meeting.

The turmoil surrounding financial markets continued yesterday as UK stocks slumped for a second consecutive day and the FTSE 100 Index fell to a three year low amid concerns that yet another financial institution will face bankruptcy as companies struggle to raise capital and prevent share prices from plummeting.

HBOS Plc, the UK’s largest mortgage provider, plunged an incredible 22% on the session after news broke that American International Group Inc fell 34% in New York following reports that the insurer’s credit ratings were cut, threatening efforts to raise funds in order to keep the company afloat.

Over $1.1 trillion has been wiped off the value of U.K shares this year as Banks are forced to seek emergency funding from the Bank of England with companies, including Barclays Plc and RBS Plc, struggle to cope with losses linked to the collapse of the U.S subprime mortgage market that currently top $120 billion across Europe.

The uncertainty and appetite for risk aversion is spreading through financial markets as the high-yielding currencies such as the New Zealand and Australian Dollar decline heavily with traders favouring less riskier assets in Japan.

In terms of economic data, the focus this morning will fall on the release of the minutes from the Bank of England’s last policy meeting after the MPC elected to hold interest rates at 5% and traders will pay particular attention to the voting pattern of the committee to gauge the prospect of any change in policy next month.

The Euro held on to the previous day’s gains against the Dollar and also remained largely unchanged versus the Pound after a report from the ZEW Centre for European Economic Research showed that German investor confidence rose for a second consecutive month.

The index of investor and analyst expectations rose to a reading of -41.1 from -55.5 in August after the overwhelming decline in oil prices and the recent drop in the Euro helped improve the outlook for economic growth.

The price of crude oil has fallen to $90 a barrel from a high of $147.27 in July while the Euro has lost 8% in value against the Dollar in the past three months, providing some relief to companies and consumers alike and that will provide some optimism that the Euro-zone economy can weather the current financial crisis.

The Dollar advanced against the Pound yesterday while the U.S currency also made gains versus the majority of major currencies amid speculation that the Federal Reserve will bailout AIG Inc and extend a loan to the troubled insurer.

Nevertheless, the Federal Open Market Committee elected to hold interest rates at 2.0% last night despite calls from some investors for a cut after the fourth biggest U.S investment bank Lehman Brothers Holdings Inc fell into bankruptcy and rocked financial markets worldwide.

The accompanying statement was fairly cautious in tone as policy makers said that “downside risks to growth and upside risks to inflation are of significant concern” while the committee will also monitor developments closely and act as necessary to “promote sustainable economic growth and price stability”.

Data Released 17th September

U.K 09:30 BoE Minutes (3/4 September)
U.K 09:30 Average Earnings (3 Months to July)
U.K 09:30 Claimant Count Unemployment (August)

U.S 11:00 CBI Industrial Orders (September)

EU 10:00 External Trade Balance (July)

U.S 13:30 Housing Starts (August)

- Permits

U.S 13:30 Current Account (Q2)

written by Adam Solomon

The Pound relinquished earlier gains against the Dollar yesterday as the turmoil sweeping through financial markets forced the Bank of England to respond with measures to provide some short-term liquidity to the market and inject an additional £5 billion in emergency funding.

The UK currency had earlier risen to a high of $1.8127 versus the Dollar following reports that Lehman Brothers Holdings Inc, the fourth largest U.S investment bank, filed for the biggest bankruptcy in history while Merrill Lynch & Co agreed to be bailed out by Bank of America after the year-long credit crunch cost banks in excess of $515 billion.

Lehman Brothers have survived the railroad bankruptcies of the 1800s, the Great Depression that followed the Wall Street Crash in 1929 and the collapse of long term capital management but the 158-year old firm has succumbed to the collapse of the U.S subprime mortgage market.

UK stocks slumped by the most in eight months yesterday as share prices in financial companies tumbled while HBOS Plc, the UK’s biggest mortgage lender, dropping a record 27% on the session and Barclays Plc and the Royal Bank of Scotland Plc both dipped 13%, to record the steepest losses since records began in 1988.

Elsewhere, the Pound was also undermined after the Confederation of British Industry said that the Bank of England should lower interest rates aggressively in November to halt for the first recession since the early 1990s.

A number of key industries have fallen into negative growth as manufacturing output slumped in August and the CBI acknowledged that companies are having a “tough time” in the current economic climate.

The director of the CBI also told reporters that policy makers should consider a “half-point cut in November”, assuming that the inflation outlook doesn’t change as commodity prices continue to fall to the lowest level in six months.

The Bank of England have so far been reluctant to lower borrowing costs amid the fastest pace of inflation in at least a decade but the EU have recently said that the UK economy has already entered its first recession since 1991 and policy makers may be forced into action and provide some relief to the market.

In terms of economic data, the focus this morning will fall on the latest consumer price index and the report is expected to confirm that inflationary pressures increased a further 0.6% on the month in August with the annual rate rising to 4.6% from this stage in 2007.

The 30% drop in oil prices has yet to feed through to the broader economy and the outcome of the report will provide a difficult dilemma for the Bank’s Monetary Policy Committee as rising prices become embedded in the economy and weigh on consumer confidence.

The Euro has declined 10% against the Dollar since touching a record high in July and EU officials admitted yesterday that the correction is a welcome relief as the Euro-zone economy teeters on the brink of a recession.

The excessive volatility saturating the market is “undesirable for economic growth” according to the accompanying statement and the ECB will remain defiant in their quest for price stability, which may support the Euro in the short-term amid speculation of a U.S interest rate cut.

The Dollar declined against the majority of the 16 most actively traded currencies yesterday while the Australian and New Zealand Dollar struggled to stem the tide as an element of risk aversion dominated the market and traders sold higher yielding currencies in favour of cheaper loans from Japan.

The financial implications of yesterday’s news and the subsequent volatility that spread through the market in the aftermath of the announcement seems to indicate that the credit market turmoil is deepening and that may force the Federal Reserve to slash interest rates this evening.

Data Released 16th August

U.K 09:30 DCLG House Prices (August)

U.K 09:30 Consumer Price Index (August)

- Retail Price Index

GER 10:00 ZEW Index (September)

EU 10:00 HICP (August Final)

- Harmonised Index of Consumer Prices

U.S 13:30 Consumer Price Index (August)

- Ex Food & Energy

U.S 13:30 Real Earnings (August)

U.S 14:00 TICS Capital Inflows (July)

U.S 18:00 NAHB Housing Index (September)

U.S 19:15 FOMC Rate Decision

written by Adam Solomon

Following on from last week, the Pound rocketed higher against the Dollar on Friday, rising to a high of 1.7993 by the close of trading while the UK currency also made gains versus a basket of currencies as the overextended decline in the pair finally started to correct.

However, the downside risks surrounding the outlook for the UK economy means that the Pound may be unable to sustain its surprising upside momentum against the Dollar amid a packed week of economic data.

The focus this week will fall on the UK consumer price index and the latest numbers are forecasted to accelerate even faster to 4.6% year-on-year in August to mark the steepest increase since May 1992.

Elsewhere, the Bank of England release the minutes of the August meeting on Wednesday and the outcome of the vote could potentially be a huge market mover for the Pound as policy makers are expected to be split on the decision to hold rates while the focus will shift to the tone of the accompanying statement.

The projected increase in consumer prices means that the Governor of the BoE, Mervyn King, will have to write yet another letter of explanation to the Chancellor but it also poses a difficult dilemma to policy makers as they attempt to balance the downside risks to growth against persistently high inflation.

The Pound may also come under renewed pressure against the majors as UK retail sales are expected to fall 0.5% last month, bringing the annual rate to a two year low of 1.6% and the tone of the report is adding to the plethora of evidence indicating that the economy is heading for a recession.

The Euro slumped to a 1-year low against the Dollar last week but the single currency bounced back on Friday after European Central Bank member Axel Weber said that the outlook for inflation has improved as oil prices retreat to a six month low.

At a meeting of European finance officials in Nice, Weber told reporters that the Central is more confident now than ever a few weeks ago and that “ recent developments have contributed towards meeting our objective” of ensuring price stability.

Oil prices have retreated from a record high of $147.27 in July but they are still up more than 26% over the past year and that is restricting consumer and business spending while the ECB have emphasised concerns over second round inflation risks as rising prices encourage workers to seek higher wages.

The Euro rallied 1.6% against the Dollar on Friday as the oversold currency finally reversed and was helped by worse than expected report on U.S retail sales while speculation over an ECB rate cut may prevent the Euro from extending its current run into this week.

The Dollar fell sharply across the board on Friday as the advanced estimate for retail sales fell more than expected in August to signal the second consecutive month of contraction and the broadly bearish tone of the report dismisses suggestions that the Federal Reserve will be in a position to raise interest rates before year end.

The focus this week will fall on the FOMC rate decision on Tuesday and the general consensus is that policy makers will keep interest rates unchanged at 2.0% but traders will look to the accompanying statement to assess the potential for a change in policy over the coming months.

Data Released 15th September

EU 10:00 Labour Cost (Q2)

U.S 13:30 Empire State Index (September)
U.S 14:15 Industrial Production (August)
- Capacity Utilisation

written by Adam Solomon

The Pound broke below $1.7500 versus the Dollar for the first time since June 2006 yesterday while the UK currency continued its upward move versus the Euro after a survey from the Bank of England showed that UK inflation expectations surged to a new record high of 4.4%.

In addition, the Governor of the BoE, Mervyn King, said the recent depreciation of the Pound may promote a wage spiral and fuel upside inflation risks over the coming months, preventing policy makers from cutting interest rates from the current 5.0%.

Nevertheless, BoE policy maker and staunch dove, David Blanchflower insisted that the Bank must intervene and reduce the benchmark lending rate as he expects labour market conditions to deteriorate further and anticipates the economy to remain subdued for the remainder of the year.

King also said that the Central Bank’s planned money market reforms won’t provide a long-term solution to the credit crisis and insisted that any decision on the matter should rest with the Prime Minister Gordon Brown.

The government announced last week new measures to revive the UK property market and the Bank of England are scheduled to unveil proposals to better cope with a slump in global money markets. However, King’s comments seem to indicate that the Central Bank is distancing themselves from any plan to boost the mortgage market with public funds.

The Pound advanced against the Euro amid concerns that a U.S led global slump will lead to a contraction in European economic growth but the UK currency slumped against a basket of currencies as the focus switches to the minutes from the Bank’s last policy meeting released next week.

The dwindling sentiment surrounding the Euro saw the single currency breach under $1.4000 versus the Dollar, dropping to the lowest level in a year, despite the hawkish statement from the ECB Vice President, Lucas Papademos.

In an interview in Hamburg, Papademos mirrored the recent statement from the Chairman, Jean-Claude Trichet, saying that the economy is likely to avoid a recession while higher energy costs are pushing up wage demands on a broad scale and feeding through to inflation.

The Dollar rallied to a fresh two year high against the Pound yesterday while the U.S currency made robust gains versus the Euro amid further evidence that the economic slowdown has spread to Europe as traders speculate on the probability of German recession later this year.
Data Released 12th September

EU 10:00 Industrial Production (July)

U.S 13:30 Producer Price Index (August)

- Ex Food & Energy

U.S 13:30 Retail Sales (August)

U.S 14:55 Michigan Sentiment (Sept Prelim)

U.S 15:00 Business Inventories (July)

written by Adam Solomon

The Pound again took advantage of broad Euro weakness, rising above 1.2500 by the close of trading last night, while the UK currency also made robust gains against the Australian Dollar despite two separate reports indicating that the UK economy will go through a recession later this year.

The National Institute of Social & Economic Research released a statement that said UK gross domestic product fell 0.2% in the period between June and August and dropped a further 0.1% in the three months through July.

The first recession since 1991 will be brought about by the momentous slump in the UK property market as prices plummet and financial services struggle to survive in the aftermath of a global credit crunch that has already cost in excess of £250 billion in writedowns and losses.

The Bank of England subsequently cut interest rates on just three separate occasions this year as concerns over rising inflation deterred a more aggressive easing in policy and the UK benchmark interest rate is still the highest among the Group of Seven nations.

UK economic growth stalled in the second quarter and the report from the NISER yesterday further underlines the dwindling sentiment surrounding the outlook for the economy but at this stage the BoE can’t afford to cut rates as consumer prices remain more than double the government’s 2.0% target.

However, a report on Monday showed that producer prices declined by more than initial estimates in August and the so called measure of factory gate inflation provides some optimism that the 30% drop in crude oil prices will begin to feed through to the broader economy.

The Prime Minister Gordon Brown said yesterday that the recent downturn in growth forecasts was due to the tightening credit conditions and surge in oil prices that hit a record level of $147.27 just two months ago.

The European Union also published a report yesterday predicting that growth in the UK economy will contract 0.2% in the third quarter with a similar decline in the fourth.

The Pound subsequently declined against the Dollar, approaching the lowest level since June 2006 by the close last night and the UK currency looks poised for a move towards 1.7500 by the end of this week as oil prices continue to decline and the Dollar gains in momentum.

The Euro continued to hover around $1.4000 against the Dollar yesterday and the single currency appears poised to visit the Fibonacci support at $1.3840 as the European Commission cut its growth outlook for the Euro-zone and predicted a recession for Germany.

The European economy will probably contract this quarter after shrinking in the previous three months through June for the first time since the Euro was introduced in 1999 but the ECB will remain defiant in their fight against inflation, according to a statement from the Chairman, Jean-Claude Trichet.

In a speech to the European Parliament in Brussels, Trichet said that the economy will probably recover from the current slump by the end of the year to bring inflation as the Bank’s primary concern.

Policy makers are staying “resolute” in their determination to keep “medium-to-long term inflation expectations in line with price stability” as the past increase in oil prices will force companies to hike prices while policy makers are concerned that a wage spiral could ensue as the cost of living rises.

The overwhelming increase in the Dollar saw the U.S currency rally to an 11-month high against the Euro yesterday, which coincided with the price of crude oil falling through $100 a barrel after U.S reports indicated a slump in demand.

Data Released 11th September

EU 09:00 ECB Monthly Bulletin Published

U.S 13:30 Initial Jobless Claims (w/e 5th September)
U.S 13:30 International Trade Balance (July)
U.S 13:30 Export Prices (August)
- Import Prices
U.S 19:00 Fed Budget (August)

written by Adam Solomon

The Pound remained largely subdued against the majors yesterday, although the UK currency stood firm around €1.2450 versus the Euro despite reports that UK house prices fell further than initial estimates in August as tighter lending conditions hampered sales.

According to a report from the Royal Institution of Chartered Surveyors, the number of property lenders saying prices fell exceeded those reporting gains while the average number of sales in the past quarter fell to the lowest level since the survey began in 1978.

The slump in the UK housing market has helped bring the economy to its knees and threatens to push growth in negative territory in the preliminary estimates for the third quarter and that has prompted the government to propose measures to improve home buying.

The Prime Minister, Gordon Brown, announced that the Labour Party will suspend stamp duty on homes bought for less than £175,000 and bring forward spending in an attempt to shore up the economy and bolster the property market.

Former Bank of England policy maker, DeAnne Julius, said in an interview with BBC radio that prices “will probably have to fall further” over the coming months while he also criticised Brown’s plan to revive the housing market, saying that “it would be counterproductive at this point for the government to step in an prevent the correction from continuing.”

The average price of a home in Britain declined 12.7% from this stage in 2007 to £174,178, according to a report from HBOS Plc, while the annual drop in prices was the biggest in at least a quarter of a century.

The housing slowdown has curtailed the pace of consumer spending as retail sales fell 1% year-on-year in August while the report from the British Retail Consortium preceded news that UK gross domes product failed to grow in the second quarter.

Elsewhere, the Pound also failed to find support after a report from the Office of National Statistics showed that UK industrial production declined in July to the lowest level in 18 months as oil prices rose to a record level over the same period.

The Pound remained largely unchanged at $1.7600 against the Dollar last night but the UK currency will probably fall further over the coming sessions as oil prices continue to retreat with Brent falling to a five month low in New York following reports that OPEC will maintain its production.

Crude oil for delivery in October fell a further 2.9% to $103.26 a barrel after previously falling to the lowest level since April at $101.74 and prices have now dropped an unprecedented 30% since achieving a record high of $147.27 on July 11th.

The Euro looks poised to fall through the support at $1.3840 against the Dollar this week, which would represent 50% retracement of the Euro’s rise from the November 2005 record low of $1.1640 to the all time high of $1.6038 in July, based on a series of numbers known as the ‘Fibonacci’ sequence.

The looming threat of a European recession continues to undermine the single currency and the EU are expected to cut growth forecasts this week as confidence diminishes and the risks of ‘second round’ inflation expectations increase.

The economic outlook in Europe will be largely be reliant on a rebound in overseas demand for European based goods but a separate report yesterday showed that exports in Germany fell more than initial forecasts in July to further underline the slump in demand.
Data Released 10th September

U.K 00:01 NIESR GDP Estimate (3 Months to August)

U.K 09:30 Trade Balance (July)

- Non EU

written by Adam Solomon

The tumbling Pound is on course for the worst year since the end of the last recession and despite falling more than 10% already this year, the New York based hedge fund company International Foreign Exchange Concepts Inc, said yesterday that the Pound is still about 20% overvalued against the Dollar despite the recent move.

The reckless comments from Chancellor Darling last week have weighed on Sterling sentiment and traders are stating to the take the British government at its word as the worst housing recession in 18-years threatens the biggest economic slowdown since the second World War.

Nevertheless, the Bank of England kept UK interest rates unchanged at 5.0% for a fifth straight month in September as consumer price inflation accelerated to 4.4% in July and more than double the government's 2.0% target.

However, the futures market is slowly pricing in up to 100 basis points of cuts over the next 12 months and the Pound lost further ground yesterday after UK producer prices unexpectedly dropped by the most in at least 22-years in August.

Prices charged by factories slumped 0.6% from July, the first decline since October 2006 and the biggest since records began in 1986 after oil and raw material costs fell 25% over the same period while economic growth stalled.

Weakening prices pressures may give the Bank of England the scope to lower borrowing costs in the near-term as the UK benchmark lending rate remains the highest among the Group of Seven nations but a number of statements from BoE officials indicates that policy makers are still concerned that inflation will accelerate.

The Pound has traded as low as $1.7507 against the Dollar this morning and the latest chart attached shows that the recent downside move against the U.S currency almost mirrors the trend in 1992 after the market peaked at $2.00 and sharply fell to $1.4000 in the months that followed.

The Dollar rallied to the highest level since October against the Euro yesterday as the U.S currency also enjoyed a sharp intraday move versus a basket of currencies as news broke of the government's takeover of Fannie Mae and Freddie Mac.

The Australian and New Zealand Dollar also benefited from the news amid speculation that the bailout will encourage trader to buy higher-yielding assets funded by loans made in Japan.

The Federal Reserve and U.S government have reduced borrowing costs by 325 basis points this year in an attempt to revive growth and their efforts seem to be working as a number of key industries bounce back from negative growth.

The Dollar rose 1.4% against the Euro to a high of $1.4068 in New York as the government seized control of the troubled companies following the biggest surge in mortgage defaults in at least 30-years threatened to curb growth in the companies making up almost half of the U.S home loan market.

Data Released 9th September

OPEC Meeting in Vienna

U.K 00:01 BRC Retail Sales (August)

U.K 09:30 Industrial Production (July)

- Manufacturing Output

U.S 15:00 Pending Home Sales (July)
U.S 15:00 Wholesale Inventories (July)

written by Adam Solomon

Following on from last week, the gloomy outlook surrounding the outlook for the UK economy combined with Chancellor Darling’s reckless comments in the Guardian newspaper conspired to drive the Pound 2% lower against the majors as the UK currency touched a fresh record low versus the Euro.

Credit Suisse overnight index swaps have gone from pricing in 75 basis points worth of cuts on the 29th August to almost 100 basis points on the close on Friday despite the Bank of England’s decision to keep interest rates on hold at 5.0% in September as consumer prices remain more than double the government’s 2.0% target.

The Pound subsequently dropped for a seventh consecutive week against the Dollar and a fourth straight week versus the Euro as the pessimism surrounding the outlook for growth suggests that the UK economy is hurtling towards a recession.

A report from HBOS Plc, the UK’s largest mortgage provider, showed that the economic slowdown is deteriorating as house prices fell for a fifth month in August and property values are expected to slip 35% from last year as the Bank of England begin a period of monetary easing.

The Pound has weakened 8.2% against the Dollar in August and the UK currency may trade as low as $1.68 over the next year as speculation increases over a 15 basis point reduction in rates next month.

In terms of economic data, the focus this week will fall on the UK producer price data this morning and the report is expected to reflect the weakening inflationary pressures in August following the 25% drop in commodity prices.

Elsewhere, the Pound may continue to struggle as UK industrial production is forecasted to contract for a fifth consecutive month while the BRC retail sales survey will indicate a further drop in confidence.

However, the UK currency continues to look extremely oversold and if the U.S Dollar finally retraces some its recent gains, Cable could see an upside gain despite the deteriorating outlook for the economy.

In addition, the Pound bounced back above 1.2360 versus the Euro on Friday as the single currency struggled to stem the losses following the ECB press conference on Thursday where the Chairman, Jean-Claude Trichet exclaimed that the Euro-zone economy faces “an episode of weak activity.”

The deteriorating outlook for growth combined with falling inflationary pressures may see the Central Bank loosen their staunchly hawkish stance on policy and force policy makers to cut interest rates and provide some relief to the consumer.

Elsewhere, the Euro declined after German industrial production slipped more than initial forecasts in July led by a drop in demand for investment as output fell 1.8% from June to further emphasise to downside risks to economic growth.

The Euro may extend its decline to $1.3355 against the U.S Dollar should the pair close below the Fibonacci support between $1.4310 and $1.4365 next week and speculation over a near term rate decrease will continue to weigh on Euro sentiment.

The U.S Dollar end the week virtually unchanged from Thursday’s low despite sharp intraday volatility following the release of the U.S employment report that showed that non-farm payrolls fell more than economists predictions in August.

The deteriorating labour market conditions saw payrolls decline 84,000 last month, marking the eighth consecutive month of contraction in U.S job growth, and worse yet the unemployment rate unexpectedly surged higher to a near five year high of 6.1% from 5.7% in July.

A separate gauge of the report showed a pick-up in wage in demands as average hourly earnings advanced 0.4% and the Federal Reserve face a difficult balancing act as record high food and energy costs feeds into inflation.

The Dollar continues to benefit from the further decline in oil prices and the U.S currency looks to poised to make further gains this week although the retail sales report on Friday could provide significant with spending expected to decline for the first time in six months.
Data Released 8th September

U.K 09:00 Producer Price Index (August)
- Output

U.S 20:00 Consumer Credit (July)

The Pound rebounded from a record low against the Euro yesterday but the UK currency slumped to a fresh 2-year low versus the Dollar after the Bank of England and European Central Bank kept interest rates unchanged at their current levels.

The UK monetary policy committee, led by the Governor Mervyn King, held the benchmark interest rate on hold at 5.0% as policy makers attempt to balance the fastest pace of inflation in a decade against the rising probability of the “the worst economic slump in 60 years” according to the bungling UK Chancellor, Alistair Darling.

The Bank’s decision to keep rates on hold could be interpreted that policy makers judge the rising threat of inflation as the biggest threat to the economic growth but the sharp and sustained drop in commodity prices may help bring consumer prices back towards the government’s 2.0% target.

BoE policy maker Timothy Besley recently said that consumer price expectations will moderate over the coming year, almost publicly withdrawing his earlier recommendation for a tightening bias as the economy struggles to cope with the slump in housing and retail sales.

The Pound rose as much as 0.7% versus the Euro after falling to a fresh record low of 1.2218 earlier in the session as the focus now will switch to the minutes of the meeting released later this month while traders speculate on the voting pattern of the nine strong committee and the timing of the next move in rates.

The Pound resumed its downward momentum against the Dollar as reports from HBOS Plc, the UK’s biggest mortgage provider, showed that house prices slumped for the fifth straight month, providing further evidence that the economy is hurtling towards contraction.

Prices fell more than initial forecasts in August to condemn the housing market to the worst performance since the early 1990s and Euro buyers may wish to consider taking advantage of this short-term sterling strength as the pessimism surrounding the UK economy gathers momentum.

The Euro fell to the lowest level against the Dollar this year while the single currency also pared losses versus the Pound after the European Central Bank kept rates on hold and the Central Bank President, Jean-Claude Trichet, said that the Euro-zone are in an “episode for weak activity.”

The latest estimates for gross domestic product in the second quarter showed that the European economy probably contracted in the three months to June and the drop in service sector growth and exports will probably lead to a recession.

The Euro also came under pressure after ECB policy maker and Luxembourg Finance Minister, Jean-Claude Juncker, said that the single currency is currently “overvalued” and a weaker Euro would help increase demand for European based exports and bring the economy back from the brink of contraction.

Trichet didn’t categorically imply a rate reduction was forthcoming in his statement yesterday but the Euro declined on speculation that policy makers were at least willing to acknowledge the risks to economic growth while trying to balance the threat of inflation.

The Dollar continued its unrelenting upside momentum against the majors yesterday as oil prices fell to a five month low and U.S service industries unexpectedly grew in August to signal that the economy is bouncing back despite the slump in housing and deteriorating labour market conditions.

A separate government report showed that first-time claims for unemployment benefits increased 444,000 last week while the ADP employer report showed that payrolls declined 33,000 in August as the focus switches to the monthly U.S job report this afternoon.
Data Released 5th September

GER 11:00 Industrial Production (July)

U.S 13:30 Non-Farm Payrolls (August)
- Unemployment
- Average Earnings

written by Adam Solomon

The Pound fell close to the lowest level since April 2006 against the Dollar and the outlook for the UK currency versus the Euro remains subdued after a report from the Nationwide Building Society showed that consumer sentiment fell to the lowest level in at least four years.

Recent estimates indicate that the UK economy stagnated in the second quarter and the report yesterday showed that growth is stumbling towards contraction as the pressure builds on the Bank of England to cut interest rates.

UK consumer confidence held at the lowest level since at least May 2004 while a separate report from the Chartered Institute of Purchasing and Supply showed that an index of service sector growth unexpectedly increased in August, although it’s still below the level of 50 to indicate expansion.

The Government’s announcement yesterday to inject £1 billion into the UK property market in a bid to shore up the economy was greeted with cynicism by the market as the Pound continued to decline against the majority of the majors, falling to a new two and a half year low of $1.7668 versus the Dollar.

The focus today will inevitably switch to the Bank of England interest rate announcement at midday and despite the rising speculation surrounding a rate cut, policy makers are widely expected to keep borrowing costs on hold at 5.0% as consumer prices remain more than double the government’s target.

The Euro fell to the lowest level against the Dollar in over seven months after another spate of negative economic data showed that European retail sales and business investment dropped more than initial forecasts in August amid concerns that the U.S led global slump has spread to Europe.

Consumer spending and exports slumped in the second quarter, helping drag the economy to a 0.2% contraction, while corporate investment fell 1.2% to record the first decline in five years and push the economy towards the brink of a recession.

Despite the obvious risks of an economic slump, the European Central Bank refuse to lower interest rates and the Central Bank are expected to keep borrowing costs on hold at 4.25% this lunchtime with the focus switching to the accompanying press conference.

The tone and language used in Trichet’s statement may provide traders with some insight into the outlook for interest rates over the coming months and it will be interesting to gauge whether policy makers are prepared to concede that inflation should ease as oil prices retreat.

The further decline in oil prices continues to bolster Dollar sentiment and the U.S currency rallied to a seven month high against the Euro yesterday after a report from the Commerce Department showed that factory goods orders unexpectedly increased at the start of the third quarter.

The 1.3% gain in bookings followed a 2.1% increase in June and the data yesterday supports the view that the economy will bounce back in the second half of the year but a U.S led global recession and a stronger Dollar may curb demand for exports.

As the focus switches to the interest rate announcements in Europe and the UK, the Dollar may be susceptible to reports from the Institute of Supply & Management, which may show that manufacturing growth fell further into negative territory last month.

A separate gauge of the report may show that business activity grew modestly in August while the ADP employment report should show that the economy lost a further 20,000 jobs over the same period and the index could provide an insight into non-farm payrolls on Friday.

Data Released 4th September

U.K 12:00 BoE Rate Announcement

EU 12:45 ECB Rate Announcement

EU 13:30 ECB Press Conference & Revised Economic Forecasts

U.S 13:30 ADP Employment (August)

U.S 13:30 Labour Costs (Q2 Revised)

- Productivity

U.S 15:00 ISM Non-Manufacturing (August)

written by Adam Solomon

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

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

Following on from last week, the Pound plunged to the lowest level in four months against the Euro to find support around 1.2360 by the close of trading on Friday after the latest round of weakening economic data indicates that the economy is edging closer towards a recession.

The Gfk index of consumer confidence held close to the lowest level on record in August while a separate report on the deteriorating outlook for the UK housing market showed that ‘luxury’ home values recorded the first annual decline in five years last month.

A recent report from the Nationwide building society showed that UK house prices posted the biggest yearly drop in almost 20-years and a rapid increase in unemployment will continue to weigh on confidence, reinforcing speculation that economy may slow sufficiently for the Bank of England to cut interest rates.

The Pound subsequently declined to a near record low against the Euro while the UK currency has now registered its biggest monthly drop in nearly 16 years versus the Dollar as the focus this week falls on the BoE rate announcement on Thursday.

The speculation surrounding the timing of the next rate reduction is likely to hamper Sterling sentiment and the Pound looks poised to record a fresh record low against the Euro this week as the economic data will point to further downside risks to the economy.

The Monetary Policy Committee are still expected to keep borrowing costs unchanged at 5.0% in September and traders will have to wait for the publication of the minutes of the meeting later this month for any further gauge on policy.

The Euro’s unrelenting upside move against the Pound shows few signs of abating but the single currency struggled to hold on to earlier gains made against the Dollar after the EC sentiment index showed that confidence in the economy fell by more than initial forecasts.

The ECB’s stubbornly hawkish stance on monetary policy continues to support the Euro but growth in the economy actually fell into negative territory in the second quarter and the report illustrates the evident risks to growth.

Elsewhere, a separate report on the harmonised index of consumer prices showed that inflationary pressur