MARKET REPORT TUESDAY 13^TH MAY 2008

Good Morning,

The Pound rallied against the majors yesterday, rising from a three month low versus the Dollar to reach 1.96 while also registering gains against the Euro at 1.2650 following an unexpected surge in U.K producer prices. The report from the Office of National Statistics showed that UK factories raised prices at the fastest annual pace since records began in 1986, indicating that a sharp increase in the cost of raw materials will stoke inflation. This emphasises the recent statement from the BoE Governor who said that commodity prices will push inflation above the 3 % level. The Bank’s Monetary Policy Committee face a difficult balancing act in the months ahead but the quarterly inflation report this morning should provide a further insight into the probability of a June rate cut. However, a separate report on the UK property market will show that prices fell in March while the BRC retail sales survey is expected to confirm that tighter lending conditions is restricting spending.

Sterling has since lost ground this morning to 1.95 and 1.2595 in the belief that interest rates will be reduced despite inflationary pressure.

The renewed appetite for the Dollar has gathered momentum in recent weeks after representatives of the G7 meeting highlighted the Dollar’s severe decline in value and emphasised their concerns over volatile moves in the currency market. The bullish sentiment surrounding the Dollar is likely to continue despite a host of negative economic data as the focus switches to the retail sales report this afternoon. Rising consumer prices and falling home values has restricted spending with sales expected to show a 0.1% fall in April.

Michael Ince

Archive News

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