DAILY REPORT THURSDAY 24^TH APRIL 2008

Good Morning,

The Pound has endured a volatile week against the majors, rising towards the $2.00 barrier versus the Dollar on more than one occasion before the market moving back towards 1.9750.

The Group of Seven nations recently declared that Finance Ministers were against volatile fluctuations in the foreign exchange market but the Pound fell against almost of all of the major currencies before the Bank of England released the minutes from the April policy meeting. The voting pattern of the nine committee members was expected to be unanimous but the report yesterday showed that two members actually elected to hold interest rates, while David Blanchflower favoured a greater 50 basis point reduction. The Central Bank faces a difficult balancing act in the months ahead with inflationary pressures expecting to exceed 3.0% this year while the current downside risks to growth have arisen following the deterioration in global credit conditions.

The Pound failed to hold on to earlier gains for a second day in a row after a separate report showed that UK mortgage approvals fell to the lowest level in over ten years in March as the seizure of credit markets prompted lenders to impose tighter lending conditions.

The Euro rallied back towards the $1.6000 barrier against the Dollar yesterday and although it closed well under this level and has traded down to 1.5750 level this morning, the diverging interest rate expectations between Europe and the U.S suggest that a further move to the upside will only be a matter of time.

The single currency also remained virtually unchanged against the Pound yesterday, as growth in European service industries unexpectedly accelerated in April, reinforcing the idea that the Central Bank could actually consider raising interest rates. Sterling has seen gains this morning trading up to 1.2550 level due to this reverse trend in the Euro. The report also reiterates that Europe's economy remains resilient to the credit crisis even as the U.S and UK teeter on the brink of a recession. A number of ECB officials have suggested that the Central Bank must restrain inflation, which has accelerated to the fastest pace in nearly 16-years.

In addition, the Dollar has found support from better than expected housing numbers as existing home sales fall less than forecast in March and that will fuel speculation the housing slump is finally showing signs of abating.

The positive momentum surrounding the Dollar may continue today as we build up to the release of a separate report on new home sales for March, although purchases probably dropped a further 1.7% from the previous month.

Michael Ince

Archive News

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