Raphaels Bank Morning Commentary

publication date: Aug 29, 2008

Sterling hits 12 year low

A revised and much stronger than expected reading of the preliminary Q2 GDP in the US economy was the attention catcher yesterday. Although the markets were looking for a revision to 2.8% (from an estimate of 1.9%), according to the official figures, the annual growth rate was 3.3%. As a result sterling, which was already falling sharply in response to general worries about the UK economy, touched a low of $1.8248 in trading yesterday. The negative impact on sterling was compounded by two pieces of gloomy news from the UK. The reading for the CBI retail survey for August illustrated another record low (minus 46) and the lowest since the series begin in 1983. In addition to this The Nationwide Building Society survey showed that in the past twelve months house prices have fallen by 10%.
 
Sterling has continued to slide against the majority of currencies and has hit a twelve year low on a trade-weighted basis as investors continue to dump the UK currency following the stream of weak UK economic data and on going speculation of a possible interest rate cut this year. Yesterday and in early trading today has seen the pound nearing the all times lows seen earlier this year against the euro and has traded as low as 1.23915 today.
 
There is little out on the data front today with eurozone unemployment and inflation (HICP) flash estimate for August. Then this afternoon out of the states there is Chigago PMI and the release of the Michigan sentiment.