U.K. Economy Cooling; Pound Downside Target Remains 1.5113

Concerns over a slowdown in U.K. manufacturing growth andmortgage market worries helped pressure the British Pound.

Concerns over a slowdown in U.K. manufacturing growth andmortgage market worries helped pressure the British Pound. Sterling investorsseem to be pre-occupied lately over the new austerity measures and tax hikes.Many still feel the economy will slump because of these two programs.

The GBP USD chart indicates room to the downside with 1.5113a potential downside target. Short-covering could trigger a quick pop to1.5600, but this likely will be another selling opportunity.

The U.S. Dollar traded flat to lower as most traders remainedcautious ahead of Friday’s U.S. Non-Farm Payrolls Report. Earlier this morningthe Dollar showed little reaction to the European Central Bank’s decision to holdinterest rates steady and a slight drop in U.S. Weekly Initial Claims.

Jobless claims remained a concern among investors becausethey remain at a high level. This is an indication that the U.S. economy iscooling while fueling worries that the recovery may not be sustained if privatefirms continue to refrain from hiring new workers.

The Euro held steady following the ECB’s decision to holdinterest rates at 1%. The market did have a positive reaction to the commentfrom ECB President Trichet who said the recovery “should proceed at a moderatepace”.

A choppy stock market led to mixed results in thecommodity-linked currencies. The New Zealand Dollar traded better, but theAustralian and Canadian Dollars were flat which may be a sign that Wednesday’sstrong rallies may have been overdone.

The rally in the U.S. equity markets has temporarilystopped the decline in the USD JPY. Earlier in the week the Japanese Yen rosesharply after the government and the Bank of Japan failed to take interventionaction and opted to increase its quantitative easing program. Stronger equitymarkets could revive appetite for risk and the carry trade, leading to astronger Dollar/Yen.

Although the Dollar is down this week, many large tradersand institutions have been on the sidelines due to tomorrow’s employment reportand Monday’s U.S. Labor Day holiday leading to speculation that this week’saction was due to thin trading conditions.