MARKET REPORT TUESDAY 8^TH JULY 2008

Good Morning,

Sterling continued to decline against the majors yesterday, dropping under 1.9700 against the Dollar and falling to a low of 1.2550 against the Euro following a report that UK manufacturing contracted by more than previous estimates in May. A broader measure of industrial production also increased the probability that the UK economy will slip into recession with Factory production slipping 0.5% compared to the revised numbers in April, the lowest level since September. Manufacturing accounts for 15% of UK gross domestic product while a downturn in the service sector growth clearly shows that the outlook for the economy is deteriorating.

The Bank of England will meet this week and had considered raising interest rates to curb inflation, but at this stage it could endanger economic growth as the slowdown spreads to the manufacturing sector. The majority of analysts now expect that rates will remain unchanged at 5% until the August inflation figures are released.

The Euro made widespread gains against the majors yesterday, shrugging off reports in Germany that growth in manufacturing had slumped.

German production fell 2.4% from April to record the biggest monthly decline since February 1999 and the report is just the latest illustration that the global slowdown is slowly filtering through to Europe .

The European Central Bank has thus far focused on the upside risks to price stability as inflation accelerates to the highest level in 16-years following a record high surge in food and fuel prices. Nevertheless, the Euro stood firm despite suggestions that a downturn in manufacturing will give the ECB limited scope to raise interest rates beyond 4.25% but the heightened concerns over a UK recession may continue to drive the Euro higher against the Pound.

Although the Dollar registered modest losses against the Euro yesterday, the U.S currency took advantage of a broad Sterling weakness while also benefiting from a surprising drop in oil prices. The UAE Dirham which is pegged to the US Dollar made gains against Sterling with the stronger Dollar sentiment from 7.32 levels last week to 7.22 levels yesterday.

Michael Ince

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.