The negative sentiment surrounding the Pound is gathering momentum as the UK currency registered further declines against the Dollar yesterday and plunged to yet another record low versus the Euro after UK home sales slumped and added to recent evidence that the economy is falling deeper into a recession.
The Pound also declined against the Yen as an element of risk aversion crept back into the market and investors sought the security of lower yielding assets, including the Dollar, while UK fundamentals again painted a gloomy picture for the outlook for economic growth.
The report from the Royal Institution of Chartered Surveyors showed that property sales plunged to an average of 10.9 in the last quarter, the fewest amount since the series began in 1978.
The RICS index also showed that a much higher percentage of agents reporting falling prices exceeded those reporting gains, a ratio that has been negative since August 2007, while a separate gauge of the report indicated that UK retail sales plunged for the first time since 2005.
The Bank of England have slashed interest rates from 5.75% at the beginning of 2008 to just 3.0% in November but a cohesive effort to lower borrowing costs in October preceded the single biggest cut in rates since 1983, bringing the UK benchmark lending rate to lowest level since 1955.
The escalating financial crisis has led to heightened concerns that the UK economy will enter a deep and prolonged recession but the unprecedented injection of liquidity and a 2.0% drop in interest rates is designed to revive growth and spur lending.
The dramatic reduction has already prompted banks to significantly lower the libor rate, while lenders have bowed to pressure from the government to pass on the cut to their clients and boost the floundering UK mortgage market.
Even so, the general lack of mortgage finance remains a major stumbling block in the revival in the housing market as prices extended declines in all 12 of the major regions monitored by the Royal Institution of Chartered Surveyors.
Falling house prices and the rising jobless rate are encouraging consumers to rein in spending as retail sales fell an annual 2.2% in October to record the first decline since April 2005.
The Pound subsequently declined against the majority of the 16 most actively traded currencies and the UK currency continues to test the major support at 1.2200 versus the Euro and with very little appetite for Sterling above 1.2300 further declines are likely.
The focus this morning will fall on the Bank of England’s quarterly inflation report and with producer and consumer prices receeding, the report is expected to reflect the overwhelming drop in oil prices in the three months through October.
In addition, UK stocks also dropped for the first time in three days in the aftermath of the reports as the FTSE dropped 3.6% on the session and the index has lost 34% in value this year alone and is poised for its worst year on record.
The Euro continued to make robust gains versus the Pound yesterday but the single currency struggled to consolidate on the short-term momentum versus the Dollar despite reports in Germany that investor confidence unexpectedly rose in November.
The ZEW Center for European Economic Research said that its index of investor and analyst expectations increased to minus 53.5 this month from minus 63 in October and investors had expected the reading to remain unchanged at close to the lowest level on record.
Nevertheless, investor sentiment has remained in negative territory for the 16th consecutive month in November, which suggests that the pessimistic view surrounding the outlook for the economy continues to outnumber those reporting optimism.
The European Central Bank have lowered interest rates by half a percentage point over the past month in an attempt to bring the economy back from a technical recession and ECB member Guy Quaden said yesterday that he expects further cuts over the coming months.
Data Released 12th November
U.K 09:30 Average Earnings (3 Mths to September)
U.K 09:30 Claimant Count Unemployment (October)
U.K 09:30 BoE Quarterly Inflation Report
EU 10:00 Industrial Production (September)
written by Adam Solomon
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- The Pound slumps to a fresh record low against the Euro as HBOS plc report another drop in UK house prices
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