Raphaels Bank Morning Commentary 2nd September
publication date: Sep 2, 2008
Australian Dollar 2.1391 Norwegian Krone 9.8616 South African Rand 13.9576
Canadian Dollar 1.9162 New Zealand Dollar 2.6123 Arab Emirates Dirham 6.5681
Euro 1.2323 Swedish Krona 11.6682 United States Dollar 1.7882
Japanese Yen 193.61 Swiss Franc 1.9825 Hong Kong Dollar 13.9604
The British Pound continues to weaken for a sixth consecutive day against the Dollar and Euro.
The pound extended its losing streak on Monday, hitting record lows against the euro and 28-month lows against the dollar after the Chancellor said the economic outlook was at its most challenging time in 60 years. Dismal housing data from property consultants Hometrack and Bank of England figures showing mortgage approvals at a series low in July compounded gloom about the economic outlook and also undermined the pound.
The pound fell to $1.7863 at 7:49 a.m. this morning, from $1.8014 yesterday, the first time it has traded below $1.79 since April 2006. It also slid to 1.2303 against the euro, from 1.2325 yesterday. Overnight, it dropped to 1.2248, its lowest level since the introduction of the euro in 1999.
A seemingly relentless tide of disappointing data on almost all aspects of the economy including housing, retail sales and economic growth grinding to a halt in the second quarter has stoked concern that the UK economy is tipping into a recession. House prices fell for the 11th consecutive month in August to stand 5.3 percent lower than a year earlier, in the biggest annual fall since the survey began in 2001. The manufacturing sector shrank for a fourth month in a row in August as demand from home and abroad fell.
The Bank of England is set to announce its interest rate decision on Thursday when, despite hopes of a cut, it is likely to keep borrowing costs on hold at 5 per cent. Sterling is now the worst-performing of the ten leading currencies this year, having fallen by more than 9 per cent against the euro since January amid mounting expectations that the Bank of England would cut interest rates.
Sterling fell 8.6 percent against the dollar in August, putting in its worst monthly performance since October 1992, when the currency crashed out of the European Exchange Rate Mechanism. Analysts say sterling is suffering not only on the view the economy will continue to lose momentum, but also because domestic weakness could be exacerbated by a downturn in the euro zone economy.
With four central bank interest rate decisions this week the pressure on the pound is set to continue, with further falls expected. Following the negative commentary on the economy by Danny Blanchflower last week and now Chancellor Darling, sterling is likely to be under pressure in the run up to Thursday’s meeting of the MPC. The market has priced in a cut in the base rate by Nov/Dec of this year.
