Volatility Stuns the Experts

On the back of positive housing price data, the Pound continued its momentum last week. Andrew Sentence, the Bank of England Policy Member insisted that interest rates should rise off the back of the budget to deal with inflation. However, amongst all the hype of housing data, it came to light that house prices grew by a mere 0.1% despite initial forecasts of 0.5%. This coupled with investors seeking traditional ‘safe assets’ such as the US Dollar, Swiss Franc and Japanese Yen saw the Pound shaken up mid-week. As the global economy continued to slow, investors undoubtedly still feel that Sterling is a slightly risky investment and the housing data news did little to ease their concerns; and although late on in the week Sterling made slight gains against the US Dollar, Bank of England officials insisted that home buyers would find it increasingly difficult to obtain a mortgage as lenders anticipated a tightening in wholesale funding market conditions. The week saw disappointing figures coming out of the US economy; this was headed by further unemployment rate increases. As expected, jobless claims for US benefits increased by 13,000 over the course of the week and payroll data declined by an expected 130,000. As business activity continues to rise at a slower pace than expected, investors have started to pour money into alternative currencies as fears mount over the state of the US economy. European debt came under the spotlight once again last week as banks in the continent came to the end of a loan period in which they were expected to repay 442 billion Euros to the ECB. However, come Thursday Spain was put under pressure as it was on the cusp of selling back 3.5 billion Euros worth of debt. The move turned out to be a good one as the successful auction coupled with the renewed loans came in at a lower total than expected which in turn helped renew confidence in the economic recovery. The European bank also lent 111.2 billion Euros to a number of European banks for six days in an attempt to ease the expiry of the twelve month loan repayments. The seventy eight banks in question received the loan at benchmark interest rates of 1%. The main focus for the coming week rests firmly on the Bank of England rate announcement on Thursday. The current rate stands at 0.5% and the most recent change occurred in March 2009 when there was a reduction of 0.5%. To discuss how to protect yourself from currency movements call +44 (0)20 7740 0000.