Raphaels Bank Morning Commentary 3rd September

publication date: Sep 3, 2008

Australian Dollar 2.1416         Norwegian Krone 9.8095        South African Rand 13.8895     
Canadian Dollar 1.8994         New Zealand Dollar  2.6146   Arab Emirates Dirham  6.50042  
Euro 1.2277                           Swedish Krona  11.6180         United States Dollar 1.7699  
Japanese Yen  192.66           Swiss Franc 1.9726                  Hong Kong Dollar 13.8181  
                   

Sterling at lowest against the US Dollar since April 2006.
Sterling fell yesterday to its lowest in 12 years against the currencies of the UK's major trading partners, with gloomy UK consumer confidence figures the latest indicator of a rapidly deteriorating economy. This is the eighth straight day the Bank of England's trade-weighted sterling index has been fixed at its lowest since October, 1996. The pound hit two-and-a-half year lows against the dollar earlier this morning and on Tuesday hit record lows against the euro.

The pound's depreciation has accelerated since Chancellor of the Exchequer “Alistair Darling” told the Guardian newspaper at the weekend the UK faces its biggest economic slowdown in 60 years. He said later he was referring to the global economy. This is seen as too little to late; the damage to Sterling had already been done. The pound remained under intense downward pressure yesterday and continues this morning.

The pound slipped further after Nationwide Building Society said its index of sentiment taken from the responses of 1,000 people remained at 52 in August, the same as a month earlier, which was the lowest since the survey began in May 2004. A report today will probably show the nation's services industry shrunk last month, adding to evidence the economy is headed toward a recession.

The UK Treasury kicked off yesterday its £1bn package for a housing market recovery plan. However, despite the government’s intentions, the announcement of a temporary stamp duty holiday, which exempts home purchases between £125,000 and £175,000 from the tax for a year, did little to lift fears of a recession on the markets. It has had a minimal impact especially as the average price of a property in London stands at £320,000 and only 13% of the available properties in London fall in to the rescue packages bracket.

 

There is now talk that the year-end forecast for the pound against the US dollar is expected at levels of $1.71, this has dropped from a previous prediction of $1.88.

 

A busy day for data today, starting this morning with UK PMI services at 09.30BST. The Chartered Institute of Purchasing and Supply will probably say today its index based on a survey of about 700 service companies dropped to 47 points last month, from 47.4 in July, That will be the fourth month the reading has been below the 50 level that indicates expansion. Eurozone Retail sales and Q2 GDP at 10.00BST. The August UK PMI survey is extremely important to the Bank of England policymakers however there is concern that the Bank of England will resist cutting interest rates tomorrow, delaying an economic recovery.