MARKET REPORT TUESDAY 8^TH APRIL 2008

Good Morning,

As we approach the Bank of England interest rate announcement on Thursday, the Pound came under further pressure and this morning has opened and traded down to 1.2525 levels against the Euro and 1.9700 against the Dollar. The instability throughout financial markets combined with the deteriorating outlook for the UK economy means that the monetary policy committee have little choice but to lower interest rates despite the Bank highlighting persistent inflationary concerns less than a month ago. Consumer prices have remained above the Bank's 2.0% target for the past three months and with food and energy prices surging higher policy makers have a difficult balancing act in the month's ahead.

By the close of trading last night the Euro stood slightly weaker against the Dollar despite an unexpected upswing in German industrial production, which offset the 0.5% drop in factory orders last week. Output increased 0.4% from February and rising construction activity is helping production for the third consecutive month. A recent spate of negative economic reports has indicated that the resilience of the European economy will be severely tested over the coming months and that will give the ECB President the flexibility to acknowledge the risks to economic growth. 

The ECB are forecast to keep interest rates unchanged this month but the language used in the accompanying statement will be heavily scrutinized for signs that the governing council are beginning ease their stance on monetary policy.

However, the Euro has made significant gains against the Pound at 1.2525 and the Dollar at 1.5775 this morning after comments from ECB officials reminded the market that price stability is still the Central Bank's top priority. Although the Dollar managed to record modest gains against the Euro last week, the sentiment surrounding the U.S economy has seen predictions that the Dollar will slump to $1.65 against the Euro by the start of the fourth quarter.

Despite a relatively positive start to the month, the Dollar declined for four straight days following Ben Bernanke's testimony to Congress last week where the Fed chairman acknowledged for the first time that a recession is possible. The unexpected drop in U.S non farm payrolls only served to emphasise the Fed's concerns and the Dollar may find little support this week as officials of the Group of Seven nations are due to convene in Washington and are unlikely to agree on a plan to support the dollar.

In terms of economic data, the focus today will undoubtedly fall on the minutes from the last FOMC meeting where policy makers will explain their decision to lower U.S interest rates by 75 basis points.

Michael Ince
Senior Trader
First Rate FX

Archive News

This commentary is generic and may not suit all circumstances. Before taking any action, we recommend either contacting your trader for guidance or obtaining independent financial advice. The information in this document was obtained from sources believed to be reliable but its accuracy and completeness cannot be guaranteed. The views and recommendations in this communication are typically short term trading views. Comments constitute views at the time of writing and are subject to change without notice. The rates shown are all indications. For specific quotations, please contact your usual trader. This document is not intended as an offer, solicitation or recommendation to buy or sell.