Market Report Monday 30^th June 2008

Good Morning,

Sterling took advantage of a broad Dollar weakness at the end of last week to rise to the highest level in 2-months and touching 1.9965 this morning. The neutral tone of the FOMC rate announcement last week, combined with the price of oil rising to $142 a barrel for the first time, has increased a weaker Dollar sentiment. The weaker Dollar sentiment was also a reaction to speculative market positioning for a rate increase last Wednesday evening while the Dow Jones Industrial Average headed for the worst June performance for some time.

The focus this week will fall on the U.S non farm payrolls where employers are expected to cut jobs for the sixth straight month in June, emphasising the gradual softening in labour market conditions. 

 The Euro has made gains against the weaker Dollar in the past week rising to a high of 1.5835 this morning and the focus this week will inevitably fall on the ECB interest rate announcement on Thursday as policy makers are expected to lift borrowing costs by 25 basis points to 4.25%.

A number of ECB officials have frequently expressed their concerns on rising inflation and the impact on the broader economy but the tone of last month’s statement led to speculation that the Central Bank will implement a series of rate increases despite the mounting downside risks to growth. The ECB have been quick to stress that a July rate hike would be a one-off and the focus will therefore fall on the tone and language used in the accompanying statement as traders look for any further indication of the probability of a further increase over the coming months. 

Michael Ince


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