Pound in Freefall
Pound Sterling - UK Markets
Sterling continued to reach record lows yesterday coming in at 0.816 against the Euro and 1.785 against the Dollar, the first time the Pound has sunk below $1.80 in 2 years.
In the aftermath of Darling's comments on the state of the UK economy, the Pound has continued to slide as traders in London dump the currency in favour of higher returns elsewhere.
Housing market data this week shows 33 000 new home loans for July, the lowest in 9 years and down 77% from a year ago. August has also been the 11th consecutive month of declining prices, which have fallen 10% since the beginning of 2008. Just how far the Pound has to fall remains to be seen at this point, but with property being the tangible investment of so many individuals in the UK, the housing and construction industries are intrinsically linked. The fortunes of the Pound and the housing industry are strongly correlated and it may be some time before we see an upward trend in either picture.
The Chartered Institute of Purchasing and Supply report released yesterday indicates manufacturing contracted in August for the fourth consecutive month, placing the pound under severe pressure in the lead up to the MPC meeting on Thursday.
US Dollar - US Markets
The US Dollar is still sitting pretty, riding a 10 month high in an index against a basket of currencies. The Dollar index showed the US currency rising 0.8% against the 6 major currencies, while the Euro slid 0.4% to a seven month low. A recent dip in commodity prices is pushing the Dollar value higher inversing the oil-Dollar correlation that dominated pre-2006.
Euro - European Markets
Political tensions over the Russian situation and general sense of gloom settling over the European economy have compounded European economic woes. EMU GDP figures and ECB interest rate decisions are due later in the week and sure to have repercussions for the Euro zone vis a vis the international economy.
The Australian Dollar fell to one year low against the US after the RBA announced first interest rate cut in seven years. Cutting the cash rate by 25 key basis points to 7.0%, the RBA remained tight-lipped on policy outlook, merely stating continued assessment and reaction in the pursuit of bringing inflation back to target of 2-3%.
Rising as high as $0.8534 immediately following the RBA statement, the Dollar quickly dropped back to of $0.8448 and has also fallen against the Yen.