The Pound declined against the Euro yesterday after an industry report showed that UK mortgage approvals slumped to the lowest level since Labour came to power in 1997 as traders scaled back the probability of a UK interest rate hike over the coming months.
The Pound slumped against the majority of the 16 most actively traded currencies as the report illustrates the tighter lending restrictions that saw mortgage approvals slump 56% from this stage last year.
As a result, UK house prices could fall as much as 9% in 2008 and the Bank of England face the unenviable task of balancing slowing economic growth against the fastest pace of inflation in a decade.
Although the Pound fell 0.2% against the Euro yesterday, the UK currency took advantage of broad Dollar weakness to break through the 1.9700 barrier before consolidating just under this level at the close.
Nevertheless, the Pound has reached the top of the range on more than one occasion in recent weeks and it would take a move beyond the resistance at 1.9850 to signal a further upside move towards 2.0400.
The Euro stood firm yesterday despite reports in both Germany and France that consumer confidence declined as rising energy costs weighed on household spending and adds to recent evidence that economic growth slowing.
The Euro-zone has remained largely resilient to a U.S led global slowdown but a recent spate of negative economic reports has dimmed sentiment and led to speculation that the European Central Bank face the same dilemma as the Bank of England in balancing upside inflation risks against a slowing economy.
The ECB have been unrelenting in maintaining risks to price stability but an increase in borrowing costs next month could have a negative effect on the broader economy.
Nevertheless, the Euro made further gains against the Dollar yesterday and despite the projected fall in EZ industrial orders, the focus will inevitably fall on the FOMC rate announcement this evening.
The Dollar plunged against the majors yesterday as a government report showed that U.S consumer confidence dropped to the lowest level in 16-years while house prices plummeted in April and reduced the prospect of a U.S interest rate hike later in the year.
The Conference Board’s index of sentiment fell to a reading of 50.4 in June, which was significantly lower than forecast, while a separate report from S&P;/Case-Shiller showed that home values fell 15.3% from this stage in 2007.
U.S service industries accounts for more than two thirds of GDP while the worst housing slump in nearly 17-years combined with rising unemployment and higher food and fuel prices means that spending is unlikely to lift the economy from the brink of recession.
The weakening tone of the reports comes in the build up to the FOMC rate announcement this evening and the Fed are expected to keep rates unchanged at 2.0% while the accompanying statement may be hawkish in tone and choose to focus on the rising inflationary concerns.
Data Released 25th June
U.K 11:00 CBI Distributive Trades Survey (June)
EU 10:00 Industrial Orders (April)
U.S 13:30 Durable Goods (May)
U.S 15:00 New Home Sales (May)
written by Adam Solomon
U.S 19:15 Fed Rate Announcement
Related posts:
- The Pound declines as UK mortgage approvals fall to the lowest level since records began in 1999
- The Pound rises against the majors as UK mortgage approvals reach a record level in January
- The Dollar slumped against the Euro, dropping to the lowest level on record
- The Pound advances against the Euro as UK mortgage approvals rises to a fresh three-year high
- The Pound falls to the lowest level in 4-years against the Euro and to a six-week low versus the Dollar
