Outlook for close of week

Thursday’s Trading

Sterling gained three quarters of a cent against the Euro on Thursday as European business and consumer confidence declined in March. Confidence fell as concerns continue with the fact that a possible US recession will slow the European expansion. However, with inflation running at its fastest pace in the Euro zone in almost 16 years the European Central Bank is reluctant to cut borrowing costs to bolster the economy as many of the other central banks have done. This could mean that any hope of the Euro weakening against the pound is fading meaning we could see the spike in the exchange rate we have witnessed over the past few days soon disappear. Therefore, to make the most of the current market conditions and ensure you do not lose out on any possible market movements speak to your account manager today who will be able to discuss the options open to you.

UK Service Sectors Slows

A report from the Chartered Institute of Purchasing Supply revealed the UK’s service sector output slowed dramatically in March. The figures dropped to 52.1 the lowest figure since November 2007 far lower than expected. However, any figure above 50 indicates expansion which means the service sector is still growing just at a much slower pace than was anticipated. The PMI confirmed that the market is pointing to a BoE rate cut next week, which could continue to push sterling lower," said James Hughes, market analyst at CMC Markets.
As many of our regular readers will be aware a cut in interest rates theoretically means a weakening in that currency. So, if we are to see a cut in interest rates as predicted by many analysts then it is possible we could see Sterling weaken against most of the major currencies.

Mortgage Squeeze Continues

A report from the Bank of England yesterday stated that the availability of mortgages in the UK is set to continue to decrease in the next three months, however the Bank also predicted that the demand for home loans is likely to fall during the same period. In fact, according to financial information service Moneyfacts, the number of mortgage products on offer has fallen by 20% over the past week.

The continued bad news from the housing and mortgage market in the UK is worryingly similar to the situation faced in the USA. Across the pond the number of repossessions is still increasing and the Bank of England has predicted the same is to follow in the UK as the bank anticipates the rate of homeowners defaulting will rise. While America faces this economic slowdown and house price crash the dollar has subsequently weakened in the past few months and as the UK economy follows suit it looks like we could see Sterling continue its downward spiral.

The report from the BOE has further increased the likelihood of an interest rate cut in the UK next Thursday when the Monetary Policy Committee next meets. Vicky Redwood, of Capital Economics, said the findings increased the chances of the Bank's Monetary Policy Committee cutting interest rates at its next meeting." The outlook for economic growth has deteriorated enough to prompt a rate cut next week," she said, yet more bad news for Sterling!