The Pound continued its upward surge against the Dollar yesterday as the UK currency peaked at 1.8638 by the close of trading last night as the impact of the Fed’s decision to inject $700 billion into on money market on Friday continued to hamper Dollar sentiment.

Elsewhere, the Pound actually declined against the majority of the major currencies following reports that UK house prices fell for a fourth straight month in September as the global credit crisis intensified while lenders imposed tighter lending restrictions on borrowers amid reported losses in excess of £250 Billion in the past year.

According to a report from Rightmove Plc, the average asking price for home in Britain fell 1% this month while the commercial director of the UK’s largest property website, Miles Shipside, said that “the housing market is on its knees and will remain so until financial institutions address the disastrous state of mortgage funding markets”

The deteriorating outlook for the UK property market shows few signs of improving and home owners face painful adjustments over the coming months as the market reels from the recent news that HBOS Plc agreed to a takeover by Lloyds TSB Group Plc after the share price in the struggling lender halved last week.

Home values have slumped by the most in twenty years over the past year while the worsening financial crisis destroyed the value of HBOS Plc and added to concerns that the UK economy entered a recession in July, leading to speculation that the Bank of England will cut interest rates in November.

Lenders are struggling with higher borrowing costs in interbank lending on concerns about escalating losses linked to the collapse of the U.S housing market but the U.S Treasury have announced a $700 billion rescue plan to buy troubled assets and bring the global economy back from the brink of a financial meltdown.

In a gesture of intent, the UK government suspended tax on home purchases of less than £175,000 earlier this month but the number of new listings per estate agent has still fallen to a record low and it may require an aggressive easing in borrowing costs to revive the ailing the UK property market.

The Euro continued to make robust gains against the Dollar yesterday while the single currency also took advantage of broad Sterling weakness, closing towards the daily low at 1.2535 last night after ECB board member Juergen Stark supported the Central Bank’s neutral stance on monetary policy.

In a statement to journalists, Stark said that lowering the benchmark interest rate would not “solve problems in the financial markets while the ECB will remain focused in their sole mandate to ensure that risks to price stability do not become entrenched in the broader economy.

Nevertheless, Stark did acknowledge that economic growth in Germany remains subdued throughout the third quarter as the impact from the collapse of the U.S mortgage market reverberates through money markets and continues to hamper growth in the global economy.

In a sparse week of economic data, the focus this morning will fall on the flash estimates for European manufacturing in September and the report is expected to confirm that growth slipped further into negative territory this month while industrial orders also slumped in July as demand from overseas declined.

The Dollar recorded the biggest single day drop in history against the Euro yesterday while the U.S currency also declined against a basket of currencies amid concerns that the U.S government’s plan to buy $700 billion in troubled assets from financial firms will inflate the budget deficit and increase the national debt by $1 trillion.

The Dollar has endured the longest stretch of declines since June as the Treasury’s proposal to bail out banks from the credit crunch failed to restore investor’s confidence in U.S assets.

In addition, U.S stocks also plunged and traders returned to commodities as a safe haven with oil prices rising $10 in New York to record the biggest single day increase in history.
Data Released 22nd September

EU 09:00 Flash PMI – Manufacturing (September)

- Services

EU 10:00 Industrial Orders (July)

written by Adam Solomon