UK House Prices Give Cause For Concern

Economic headlines in the UK this morning are being dominated by the Nationwide House Price report which has revealed a worrying drop of 0.7 percent in house prices in October. This follows a 0% no change last month. The official release also deals with how further quantitative easing may impact the housing market. Markets will be watching to see whether a build up of information on this key area of the UK economy will dampen the Pound’s rally following Tuesday’s GDP figures.

Pound Sterling – UK Markets

Sterling made more ground against the Euro yesterday to close at €1.1463, a gain of 0.5% on the day as sentiment about the UK Q3 performance remained positive. In early European trading, the rally has faltered with the Pound currently trading at €1.1416 (at 07:10 GMT). Sterling retreated from earlier gains against the US Dollar, for most of the day yesterday, but rallied in overnight trading. At the close, the Pound was worth $1.5823. Currently, £1 will buy $1.5807 (at 07:10 GMT). Nationwide Bank has announced that house prices fell by 0.7% in October over the previous month’s price. The average UK home costs £164 380, but that figure is still 1.4% higher than it was in the previous year. However, if the trend continues, the end of the year may see prices drop below their 2009 values.

US Dollar – US Markets

For most of the day yesterday, the Dollar made gains against both the Pound and the Euro. This has been largely attributed to the forecast published in the Wall Street Journal yesterday regarding the amount of stimulus that the Federal Reserve will have to issue – contrary to the the $1 trillion figure that had been feared, the publication suggested it would be more like a few billion Dollars. The Euro gains have also been largely lost in overnight trading as demand for alternative higher yielding currencies picked up. At the close yesterday, the Dollar was buying €0.7425, a gain of 0.8%. In early European trading, the current rate is €0.7229 (at 07:30 GMT). Yesterday we reported a fall in US house prices; today data suggests that there has been a rise in new house sales. The figures show that sales improved by 6.6% over the August figure, giving a seasonally adjusted, annualised figure of 300 700. However, this is close to a record low and is 21.5% below the number of new house sales from last year.

Euro – European Markets

The Euro is rallying against both Sterling and the US Dollar in early European trading and has already largely recovered yesterday’s losses that occurred as fears over Greek and Portugese debt were resumed with Portugese budget talks collapsing yesterday and the Greek Prime Minister threatening to call early elections. The current values are that £1 is worth €1.1410 and €1 is worth $1.3820 (at 07:36 GMT). The pick up follows suit with the positive news that German unemployment has dipped below 3 million - the best performance seen since 1992 meaning that more Germans are now in work than at the peak of the global financial crisis and that by most definitions, the recession is truly over in Germany.

Other Currencies – Highlights

The Bank of Japan has continued with its near zero interest rate policy with key rates held between 0 and 0.1%. The Yen was trading at a lower rate against Sterling and the Dollar at yesterday’s close, but was up against the Euro. For a live quote or to tell us about your foreign exchange requirements, please call us on +44 (0)20 7740 0000.