MARKET REPORT THURSDAY 4TH SEPTEMBER 2008 

Good Morning, 

Sterling weakened for a sixth consecutive day against the Dollar yesterday, trading down to 1.7800 for the first time since June 2006 and to a fresh low against the Euro trading down to 1.23 despite Government plans to revive the UK property market by suspending stamp duty tax on UK homes bought for less than £175,000 for one year. UK homebuilding has fallen into negative territory and a contraction in service sector growth and manufacturing has indicated that the economy still stands on the brink of recession. The downturn in economic growth forecasts has prompted market speculation that the Bank of England will have to begin a series of interest rate cuts over the coming months and this belief has caused Sterling 's demise. However, 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 the weaker expansion.

Although the Euro made gains against Sterling it continued to struggle against the Dollar trading down to seven month lows below 1.45 after European producer prices increased by 9% since last year due to record high crude oil prices. The extent of the increase supports the ECB's tightening on monetary policy even at the risk of a recession. The Euro may come under further pressure again today as the latest GDP estimates confirm that the economy failed to expand in the second quarter while Service sector growth slipped further into negative territory.

The sustained drop in oil prices continues to support sentiment for the Dollar with prices falling to lows of $105 yesterday as Hurricane Gustav was downgraded to a tropical storm and missed U.S refineries off the Gulf of Mexico . There is also market speculation that the Federal Reserve's next move will be to lift interest rates to combat inflation as the U.S economy out performs Europe and Asia .

Michael Ince

Archive News

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