UK Inflation On Hold & House Prices Continue To Plummet

Markets have opened this morning to the news that UK house prices have fallen to their lowest levels since May 2009 and August Inflation figures have been released at 3.1%. This news caused a correction in gains from Sterling made over night. The Pound was trading at the mid-market rate of 1.5436 against the US Dollar and 1.1971 against the Euro at 9.45 am this morning.

Pound Sterling – UK Markets

The Pound is dropping against the Euro and the US Dollar this morning. Caution is still widespread about the UK economy following more disappointing news from the housing sector. House prices fell for the second month in August and are expected to keep falling in all areas other than Scotland. This is being blamed on the current difficulty for consumers to achieve a mortgage with many more properties on the markets than buyers, pushing prices down. After three months of falling inflation, August saw levels unchanged at 3.1%. With the Government's spending cuts just around the corner, a tightening of fiscal policy imminent and the impending rise in VAT, could all apply upward pressure on an inflation levels. There is still a long way to go before the record inflation highs of 1975 in which we saw levels of 24.2% but the cost of living for your average home owner is set to increase for the short term. The UK picture is certainly still cloudy and markets have latched onto the poor housing data with volatility in Sterling to be expected.

US Dollar – US Markets

The Dollar has slumped to a two month low against the Euro. It had been protected recently by investors using it as a safe haven on signs of global slow down. However, following positive news on Chinese growth and relief over the new Basel III rules that have lessened pressure on banks, the weakness in the US economy in now showing in the depreciation of the Dollar. The Dollar is performing particularly badly against the Japanese Yen. It fell to 83.09 Yen following political events in Japan and is at a fifteen year low with some economists suggesting it may fall further to its lowest post-war level.

Euro – European Markets

The Euro has broadly gained on the Pound and the US Dollar. European banks are particularly going to gain from the new Basel III banking rules, which have giving banks an ample eight years to boost their capital ratios to the higher levels required to avoid another financial crisis. The European Commission also spoke yesterday revising the expectations for growth up to be twice as fast this year as previously thought in the Eurozone. Growth in the Eurozone is now expected to be 1.7 percent this year rather than the 0.9 percent forecast in May. The Commission forecast is in line with the forecasts of the European Central Bank and concerns over the fragile European recovery have lessened with the Euro gaining.

Other Currencies – Highlights

The Japanese Yen is soaring after the Japanese Prime Minister Naoto Kan won a vote for control of the ruling Democratic Party of Japan. This will lower the likelihood that the Government will sell Yen to weaken the currency although there are fears that the strengthening currency will put the Japanese economy at risk and undermine the cheap Japanese export market. The New Zealand Dollar has dropped on speculation that growth will slow this quarter following falling retails sales, after the earthquake. For a live quote or to tell us about your foreign exchange requirements, please call us on +44 (0)20 7740 0000