MARKET REPORT 26^TH MARCH 2008

Good Morning,

The renewed sense of instability surrounding financial markets coupled with the deteriorating outlook for the U.S economy saw the Dollar decline yesterday against most of the actively traded currencies. The underlying weakness in the U.S currency can also be attributed to speculation that the Fed will lower interest rates by a further 50 basis points next month and that sentiment was echoed in the consumer confidence data released yesterday.

The decline in consumer confidence will be a major concern to policy makers as declining stock prices and property values limit consumers' ability to spend. A sustained drop in the pace of spending, which accounts for more than two thirds of the economy, would surely invoke the second recession in just ten years while further evidence on the U.S housing market shows that the worst slump in nearly twenty years is showing few signs of abating.

The appreciation of the Euro continued yesterday as the single currency took advantage of broad Dollar weakness to close last night above the 1.5700 level and further upside momentum is likely today. 

German business confidence may rise for a third consecutive month in March and provide further evidence that Europe 's largest economy is resisting the credit crisis and the surging cost of oil.  

The index of confidence is expected to deteriorate as the ECB refuses to alter their stance on monetary policy and the Euro appreciates to record highs against both the Pound and the Dollar.

The revival in Sterling sentiment saw the UK currency break above the $2.00 barrier versus the Dollar last night while the Pound also gained a little ground against the Euro, up to 1.2800 level amid reports that the furore surrounding HBOS plc were severely over exaggerated. Nevertheless, the medium term outlook is that the Pound will continue to decline against the Euro as the market expects the UK economy to under perform the Euro-zone.

Michael Ince
Senior Trader
First Rate FX

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