MARKET REPORT FRIDAY 4^TH APRIL 2008

Good Morning,

The price action surrounding the Dollar saw the U.S currency post fresh losses against Sterling yesterday as weak economic data only increased the view that the U.S economy is in the midst of a recession. The Dollar had staged a modest recovery over the past week with some sense of stability returning to the financial sector as stocks rebound and commodity prices drop. Nevertheless, the U.S currency has been susceptible to weak economic data as reports yesterday showed that initial jobless claims unexpectedly increased last week while growth in U.S services industries contracted for a third straight month.

The report coincides with Bernanke's recent testimony to Congress where the Fed chairman admitted that growth in the economy would contract this year. The Dollar closed just under the $2.00 barrier versus the Pound and further losses are possible today as we build up to the monthly U.S job report this afternoon.

The U.S currency has received some support this week as traders appetite for risk aversion subsides but with payrolls expected to decline for a third consecutive month in March, the Dollar may struggle to stem the tide.

The recent spate of negative economic reports indicates that the Euro is no longer immune to the effects of a U.S economic slowdown and the single currency recorded further losses against the majors yesterday.

European retail sales unexpectedly dropped for the month of March and a major German bank reported €4.3 billion in write-downs from the collapse of the U.S subprime mortgage market.

In the aftermath of the reports, speculation intensified that the European Central Bank will be forced to cut interest rates this year. The Euro subsequently declined 0.7% against the Dollar and also paired losses versus the Pound trading up to 1.27 levels, as cracks begin to appear in the Euro-zone economy.

The Bank of England faces a week of deliberating with the market anticipating a 25 basis point reduction.

The recent market turmoil combined with the deteriorating economic outlook means that the MPC may need to lower rates in order to provide some relief to the consumer but policy makers will be concerned with the current level of inflation as prices continue to rise.

Data Released 4th April 

GER  11:00   Industrial Orders    (February)

U.S    13:30  Non-Farm Payrolls    (March)

Michael Ince
Senior Trader
First Rate FX

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