Negative Equity Crisis In Store for UK Housing Market

The UK housing market is in the headlines, being hailed as the lead indicator of the UK’s flagging economy. Despite monthly mortgage approval data coming in this morning as slightly better than expected, the National Housing Federation have released a report saying that home owners will experience another four years of negative equity. Sterling was trading at the mid-market rate of 1.2156 against the Euro and 1.5414 against the US Dollar at 10.30am this morning.

Pound Sterling – UK Markets

The Pound had dropped against the US Dollar on expectations that this morning’s mortgage approval data would disappoint. In fact, mortgage approvals came in slightly above expectations but the mood has been partly blighted by the National Housing Federation Report and the Pound is still dropping against the Dollar. The report estimates that home-owners who bought their properties during the 2007 peak, will not recover their investment for another four years due to negative equity. It is predicted that house prices will fall by another three percent next year before beginning to climb.

US Dollar – US Markets

The Dollar has been climbing against the Euro and Sterling over the past couple of days. Friday’s speech by Federal Reserve chairman Ben Bernanke revealed his view that additional stimulus measures will be provided if the US economic outlook continues to weaken. Therefore data this week following Bernanke’s comments will be important. This starts today with the Case Shiller home price index, Chicago Purchasing Manager’s Index and US Consumer confidence. There will also be the publication of the last FOMC meeting minutes. The Dollar still seems to be gaining from negative US data as a world safe haven.

Euro – European Markets

As investors have continued to follow safe haven routes in preparation for a heavy week in US data, the Euro has fallen against the US Dollar. Should the data stream out of the US be negative, it’s likely that the Euro will continue to lose out to the Dollar. Eurostat unemployment figures came out flat today at 10% but the variation on individual countries is significant ranging from 3.8% in Austria to 20.3% in Spain. Germany is leading the recovery from the front and lower jobless rates coupled with positive manufacturing data may help to give the Euro some strength against Sterling indications of which we have seen this morning. The uncertainty over the global outlook is also causing the safe Swiss Franc to surge with the Euro hitting new lows against the Franc with this looking set to continue.

Other Currencies – Highlights

Despite efforts from the Bank of Japan to cool the currency with an announcement of emergency monetary policy easing and the amount of fixed rate loans to banks being raised, the Yen has continued to rise and is still at fifteen year highs. The actions taken by the Bank of Japan, who are reacting to concerns over the damage to Japanese exports, seem unable to compete with market sentiment at present with risk aversion being the biggest priority. Today sees the release of GDP figures in Canada expected to show a quarterly drop. For a live quote or to tell us about your foreign exchange requirements, please call us on +44 (0)20 7740 0000