UK Housing Market Under Strain

The housing sector continues to be one of the most concerning areas of the UK economy. Markets have opened this week to news from the UK of another drop in house prices reported by Rightmove over the weekend and Bank of England data this morning indicating a drop in mortgage approvals. Sterling was trading at the mid-market rate of 1.5601 against the US Dollar and 1.1913 against the Euro at 10 am this morning.

Pound Sterling – UK Markets

The Pound rose for the first time in six weeks versus the US Dollar last week but remains under a lot of pressure and UK market information will be closely watched this week. Housing data already released this morning and over the weekend has shown a drop to 45,000 mortgages in August from 47,000 the previous month, alongside another fall in house prices. Public finance data is due out on Tuesday and the publication of September’s Bank of England minutes rate meeting is due on Wednesday. The minutes will reveal the discussion surrounding the high level of inflation well above target and reveal if anyone else joined Andrew Sentence in his calls for an interest rate increase to tackle the problem. The general sentiment is that the economy is still fragile and a report by the EEF engineering group has revealed that the amount of bank lending to UK manufacturers has barely changed in the past two months despite government and business leaders calling on banks to provide better lending to businesses. On a positive, although UK retail sales unexpectedly fell last month, John Lewis have provided some hope for this month by releasing sales figures 12 percent up from the same week in 2009. It remains to be seen if other retailers will follow.

US Dollar – US Markets

The US Dollar has started the day with a gradual drop against the Pound and is sitting around a five week low against the Euro. Investors may be waiting to see the outcome of tomorrow’s Federal Reserve rate meeting with some uncertainty over whether a decision may be taken to further easing or stimulus measures to help along the slowing economy. Interest rates are expected to stay low for an extended period. Friday’s Michigan consumer sentiment data, which provides a survey of consumer confidence in the economy, fell to its lowest level in more than a year and a report later today is expected to illustrate the ongoing weakness in the housing market.

Euro – European Markets

The Euro is holding up well against the Pound and the US Dollar given last week’s jitters about Ireland’s finances and the International Monetary Fund following a report from Barclays Capital. The report warned that Ireland may need exterior help in the event of large scale losses in the financial sector. Although the report was dismissed by the Irish government, the report on Ireland draws attention to the possible defaults of other European member countries and this sentiment may begin to weigh on risk-appetite in the currency markets. Key economic data releases from the European Union begin on Wednesday this week.

Other Currencies – Highlights

The Australian Dollar reached a two year high against the US Dollar following the largest mining boom in over a century. The currency has benefited from its ties to China’s economy and feeding China’s demands for iron and coal has caused the acceleration in the currency. However, the currency is thought by some economists to now be over valued and may face a steep drop once Prime Minister Julia Gillard’s planned tax on mining companies will dampen demand for the nation’s assets later this year as the global economy slows down. For a live quote or to tell us about your foreign exchange requirements, please call us on +44 (0)20 7740 0000