DAILY REPORT WEDNESDAY 30^TH APRIL 2008

Good Morning

The Pound was once again susceptible to a barrage of weak economic reports as the UK currency fell towards 1.9650 versus the Dollar.UK mortgage approvals declined in March to the lowest level in almost a decade as banks and lenders withdrew their best offers and imposed tightening borrowing restrictions. The report on mortgage approvals yesterday really emphasises the degree of uncertainty surrounding the housing market at present as net lending on homes plummeted to just £6.9 billion, the lowest in three years.

The Pound came under further scrutiny yesterday as a separate report from the Confederation of British Industry showed that consumer spending dropped to the lowest level since November 1992 as falling homes values restricts consumer spending.

Oil prices have risen to a record high above £119 a barrel but despite the mounting inflationary pressures, the Bank of England could be forced into a back-to-back rate cut in May. The governor of the BoE, Mervyn King said yesterday that inflation will hold near 3.0% for longer than initially anticipated but this hawkish commentary conflicts with the sharp drop in mortgage approvals and decline in consumer sentiment.

The Euro has been struggling against the majors in recent weeks as weakening economic reports indicates that the Euro-zone is no longer immune to the threat of a U.S led recession. Deutsche Bank, Germany 's largest back, reported its first quarterly loss in five years while European retail sales plunged to the lowest level on record as sales across Germany and France fell.

Record high food and energy costs are affecting sentiment while the measure of sales growth in the Euro-zone fell for a second consecutive month. The fastest pace of inflation in 16-years is squeezing margins and weighing on spending while at the same time discouraging the ECB from cutting interest rates.

The mini revival in Dollar sentiment continued yesterday as the U.S currency rallied against the Euro and made further gains versus the Pound as we build up to the FOMC rate decision tonight. The Federal Reserve's open market committee face a difficult balancing act amid deteriorating economic growth and rising inflationary pressures. The positive momentum surrounding the Dollar can be attributed to speculation that the Fed will keep rates on hold this month after early forecasts of a 25 basis point cut.

In addition, the Dollar may struggle to make further gains as a report this afternoon may show that the U.S economy grew at the slowest quarterly pace in five years and consumer spending faltered and the housing slump worsened.

Michael Ince

Archive News

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