MARKET REPORT WEDNESDAY 9^TH JULY 2008

Good Morning,

Sterling lost ground again yesterday against most currencies following reports that the UK economy was slipping into a recession with shrinking consumer confidence, house sales figures dropping and a bear market developing in the Stock Market. The £/$ exchange rate moved to trade lower on 1.96 and the £/€ edged lower to trade down to 1.2550 levels. The main market focus of course is on the Bank of England’s interest rate decision on Thursday due out at 12.00. The Euro remained virtually unchanged against the Pound and the single currency may struggle to make any further gains as a revised estimate of EU gross domestic product probably showed that the economy had also slowed.

Lower oil prices and renewed sentiment for the Dollar caused the Euro to come under selling pressure against the Dollar yesterday, trading down to 1.5650 levels with the ECB also indicating that last week’s rate rise was not the first of a series of rate hikes.

In addition, oil prices have dropped more than $9 since reaching a record high of $145.85 last week as signs of a global economic slowdown will prompt investors to sell commodities in favour of lower yielding assets.

The Dollar sentiment may also continue against the majors after the Federal Chairman, Ben Bernanke, reassured the market that the Reserve Bank is prepared to act and may extend its emergency loan program for securities into 2009. The Dollar had been under pressure at the start of the week amid concerns that two of America ’s largest mortgage finance companies, may need to raise additional capital.

However, the message from Bernanke yesterday combined with falling oil prices erased any earlier losses and the U.S currency may extend its run today as statement from the G8 meeting in Japan may show that the member are focusing on inflation as the primary concern to the global economy. 

Michael Ince

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