The U.K. CBI distributive trades report crossed the wires at -26, sending the pound over 50 points lower. The reading was over eight times lower than the -3 that was expected. The pound was weighed lower throughout the overnight session as U.K. mortgagee approvals fell to 64,000-the lowest level in at least nine years. The tight credit markets remain an obstacle for borrowers and will continue to suppress house prices going forward. Central Bank Governor Mervyn King said today that the “ratio of house prices to earnings will fall” when speaking to the U.K treasury select committee. He would go on to say that although retail sales have been “surprisingly strong” consumer spending will fall, possibly quite sharply. The MPC leader would also reiterate the committee focus on keeping inflation near their target, but if consumer consumption continues to falter, another rate cut may be needed to cushion the fall of the economy.

The Euro fell to as low as 1.5539 during the overnight session, despite light trading due to a Japanese holiday, on a four year low in retail sales. The Eurozone retail PMI index fell to a seasonally adjusted 41.8 in April from 48.2 the month prior, as rising food and energy costs saw consumer’s buy 40% less food and drinks. Rising inflation has kept the ECB frozen in its tracks as its mandate is to maintain price stability. The central bank has continued to maintain its hawkish stance, despite mounting evidence that the regions economy is starting to realize the affects of the U.S. slowdown and the credit crisis. As long as the current interest rate differential is expected to hold between Europe and the U.S., the Eur/Usd will find support and prevent any significant reversal from the dollar.

The New Zealand Dollar came under heavy selling pressure when its annual trade deficit widened NZ$50 million in March, against expectations of a surplus of NZ$395. The shortfall was a result of an eight month low in exports, bringing the 12 months ended March 31 total deficit to NZ$4.42 billion. New Zealand exporters saw a decline in demand from China, shipping nearly 40 million less goods. The Kiwi fell as low as 0.7762 before consolidating around 0.7780. Economic growth is expected to slow to its lowest levels in over ten years, as record interest rates have dulled growth faster than officials had hoped.

U.S. consumer confidence and the S&P/ Case Schiller home price index will serve as the appetizer for tomorrow’s Fed Rate decision. The two indicators will give investors insight into the most troubling areas of the economy. Expectations are that the housing industry will continue to deteriorate and in turn drag consumer confidence with it. Until the housing sector establishes a bottom, the downside risks to the U.S. economy will remain, which will continue to weigh on the dollar. However, a rebound in these numbers combined with the expectation that the central bank will signal a pause to their current easing cycle may have Dollar bulls looking to test support at 1.54.

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