MARKET REPORT MONDAY 7TH JULY 2008
Good Morning,
Following last week, Sterling declined again this morning as the dwindling sentiment surrounding the outlook for growth led to speculation that with rising prices and the economy on the brink of recession, the Bank of England will keep rates on hold at 5% this week.The rate against the Euro has opened this week trading below 1.26 and below 1.97 against the US Dollar.
The impact on consumer price inflation will probably see inflation hit 4% later this year but the Bank of England can’t afford to raise interest rates in the medium term as growth in manufacturing and service industries slip into contraction.
The Euro posted a decline against the Dollar and also suffered sharp losses against the Pound last week after the ECB President, Jean-Claude Trichet, failed to give any clear insight into a further increase in rates. Despite the Central Bank’s decision to lift interest rates by a quarter of a percentage point on Thursday, the Euro declined on speculation that policy makers wouldn’t raise again. The tone of the accompanying statement disappointed many economists who were hoping for a series of rate increases this year as inflation threatens to the exceed 4.0% and climb to the highest level in nearly 20 years.
The speculation surrounding the outcome of the U.S nonfarm payrolls report last week saw the Dollar plunge to a low of 2.00 versus the Pound in mid week while oil prices continued to hit record highs. However, the report was in line with expectations and the Dollar subsequently benefited from news in Europe and reports in the
Like the Euro-zone the U.S economic data is light this week so the focus will switch to the G8 meeting in
Michael Ince
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