MARKET REPORT FRIDAY 23^rd MAY 2008

Good Morning,

The Pound surged to the highest level in three weeks against the Dollar and the Euro yesterday as oil prices peaked and a UK government report showed that retail sales declined by less than anticipated in April. Softening house prices, rising inflationary pressures and the impact of the credit crunch has weighed on consumer spending with sales falling for a second consecutive month in April. Sterling rallied against the Dollar, breaching the 1.9800 barrier by the close of trading last night, and 1.26 against the Euro, as the decline in sales was less than forecast. However, the Governor of the Bank of England, Mervyn King, said last week that the economy was in danger of slipping into recession as consumer confidence fell to the lowest level since 1992.

The Dollar improved against the weaker Euro yesterday trading to 1.57 level from 1.58 as oil prices finally stopped moving higher amid signs that the recent 16% increase isn’t justified by mounting stockpiles and steady demand. As the price of crude oil breached $135 a barrel, OPEC ministers admitted that they were powerless to stop the move despite reports that the rise in prices had more to do with institutional investors / speculators coming into the market rather that the issue of supply. The correlation between rising oil prices and the decline in the Dollar has been increasingly apparent over the past week but the $2 drop from the highs in prices yesterday may see the U.S currency resume some upside momentum against the majors.

In terms of economic data, the Dollar also shrugged off an earlier report on the U.S housing market as prices fell 3.1% in the first quarter while the weekly jobless numbers indicated that a drop in claims could affect payrolls.

Michael Ince

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