Daily Insight

The renewed bearish sentiment surrounding the Pound continued yesterday as the UK currency plummeted 0.9% against the Dollar and recorded significant losses versus the Euro following two consecutive days of gains.

A report from Nationwide Building Society showed that UK house prices dropped by the most in 12-years this month while mortgage approvals fell to the lowest level in nearly 3-years.

The average cost of a home declined 0.8% from October, which represents the single biggest monthly decline since June 2005 and the report provides yet further evidence that the decade long housing boom is coming to an end.

In addition, the number of UK mortgage applications plummeted to the lowest level since February 2005 amid renewed concerns over a second credit crunch and the BoE's decision to lift interest rates to the highest level in 6-years.

The gloomy outlook for the UK economy has led to speculation that growth will slow and that will prompt the Bank of England to lower interest rates by 75 basis points over the next six months.

Strong consumer spending, low unemployment and rising home values have been the catalyst for the UK economy reaching the fastest pace of economic expansion since 2004. However, Nationwide predicts that UK house prices will stall next year and contract for the first time since 1992 as a slowing economy and a crisis in credit curbs demand.

The volatility surrounding equity markets yesterday and the failure to extend their gains weighed on most high-yielding currencies, including the Euro, which fell 0.4% against the Dollar last night.

Economic data in the Euro-zone was mixed yesterday and therefore the move can be attributed to a broad base Dollar recovery after the U.S currency fell to a fresh record low earlier this week.

The strength of the labour market was again apparent in Germany as unemployment fell by more than initial forecasts in October while retail data in France was weaker. Elsewhere, the Euro has struggled to recover this morning and has traded back above 1.4000 versus the Pound after German retail sales had the biggest drop in nearly a year last month.

Despite strong growth in the labour market, sales fell 3.3% from September as rising food and fuel costs hamper spending amid signs that growth in the German economy is losing momentum.

Although the Dollar appeared to make gains against both the Pound and the Euro yesterday, the negative sentiment surrounding the U.S currency continues as a barrage of negative economic reports increase the prospect of further monetary easing next month.

The worst housing slump in nearly 17-years combined with slowing economic growth has seen the Federal Reserve lower interest rates by 75 basis points in just two months and yesterday a report from the Commerce Department showed a further drop in the sales of new homes.

The collapse of the U.S subprime mortgage market and the turmoil surrounding the financial sector has seen projections that the housing recession will extend in to next year even as home values dropped by the most in nearly 40-years.

Elsewhere, a separate report on the revised estimate of U.S gross domestic product showed that growth in the economy accelerated in the third quarter before the impact of the housing slump was realised.

Data Released 30th November

EU 10:00 EC Business Climate (November)

EU 10:30 EC Economic Sentiment (November)

EU 10:00 GDP (Q3 Revised)

EU 10:00 HICP Flash (November)

UK 10:30 Gfk Consumer Confidence (November)

U.S 13:30 Personal Income / Consumption (October)

U.S 14:45 Chicago PMI (November)

U.S 15:00 Construction Spending (October)

written by Adam Solomon