Daily Insight

The Pound succumbed to weaker housing data on Monday and the UK currency recorded a two day slump against the Dollar yesterday after a separate report from the British Banker’s Association showed that mortgage approvals plunged 39% from this stage in 2007.

An earlier report from Hometrack Ltd showed a further decline in UK home values while the Financial Times reported that more than 20% of homebuyers with a poor credit history fell behind on their mortgage repayments in the first quarter of this year.

House prices have slipped for an eighth consecutive month in May and according to Mervyn King, the market is bracing itself for a further reduction over the coming months. The reports combined provide a measure of consumer confidence in the UK, particularly because household spending is largely dependent on borrowing with a high proportion of wealth tied up in property.

The Pound dropped to a low of 1.9718 by the close of trading last night while also recording losses against 14 out of the 16 most actively traded currencies. The worsening state of the UK housing market has added to signs that an economic slowdown will gather in momentum this year and despite speculation that interest rates won’t be reduced further, the Pound may struggle to make gains after falling 8.6% in value against the Euro in just five months.

Nevertheless, the Pound did actually record some modest gains against the Euro, briefly revisiting the resistance at 1.2600 after a spate of weak European economic data showed that consumer confidence in Germany and France fell by more than expected.

An index of sentiment fell to the lowest level in over two years in France, reflecting the surging cost of raw materials while speculation that oil will breach $150 a barrel this year continues to undermine confidence.

Concerns over supply, militant attacks in Nigeria and speculation that traders are manipulating the market has seen the price of oil more than double over the past year, although Crude oil fell as much as $3 yesterday as higher fuel costs sapped U.S demand.

The European Central Bank is under pressure to provide some relief to consumers and relent their hawkish stance on inflation while economic growth forecasts have declined significantly this year following tighter credit conditions and slowing overseas demand.

The decline in oil prices coincided with the Dollar’s upside move against the Pound yesterday while the U.S currency also made gains versus the Euro despite further evidence that the American economy is struggling to cope with rising prices and a worsening housing slump.

The Conference Board’s gauge of consumer confidence slumped to the lowest level since 1992 as the two year decline in the property market showed no signs of abating. The correlation between falling home values and dwindling consumer confidence is by no means a surprise but a separate report the Commerce Department showed an unexpected increase in new home sales.

Although sales increased 3.3% from the lowest level in 17-years, the report also showed that readings for the previous month were revised down as prices dropped in the first quarter by the most in at least 20-years.

Data Released 28th May

EU 09:00 Current Account (March)

U.S 13:30 Durable Goods (April)

written by Adam Solomon