The Pound struggled to break above 1.2700 versus the Euro yesterday while the UK currency also consolidated near a two year low against the Dollar after a report from Rightmove Plc showed that house prices slumped to record the biggest annual decline since the survey began in 2002.
The average asking price for a home in Britain declined 4.8% in August from this stage in 2007 to record the biggest annual drop since the survey began measuring home values six years ago.
The impact of the credit crisis has forced banks to impose tighter lending restrictions while the escalating threat of a recession has seen consumers rein in spending as prices hit decade highs and home values slump by the most in almost 20-years.
The Governor of the Bank of England, Mervyn King, said just last week that current housing slump is likely to extend well into 2009 with the market facing “a significant adjustment” as banks withdraw their best offers and maintain higher mortgage rates.
UK banks and lenders are reluctant to release home loans after more than £250 billion in losses and writedowns linked to the collapse of the U.S subprime mortgage market as approvals dropped to the lowest level since at least 1999 in June.
The downturn in housing has exacerbated the economic slowdown as growth in services and manufacturing fall into negative territory while unemployment has risen by the most in 16-years.
The looming threat of a recession and speculation of a UK interest cut has driven the Pound 7% lower against the Dollar in past month and despite a likely period of technical consolidation, the UK currency looks poised to fall further as we build up to the release of the minutes from the Bank of England on Wednesday.
The dwindling sentiment surrounding the outlook for the European economy continued yesterday amid reports that the trade deficit widened to the biggest margin in almost two years in June as imports rose twice as fast as exports.
The Euro subsequently declined against the Pound while the focus this morning will switch to the ZEW survey for investor confidence in Germany and the report is likely emphasise the declining expectations in Europe’s largest economy.
The recent negative tone of European economic data suggests that growth will slip into contraction over the coming months but the ECB are unlikely to relent in their staunchly hawkish stance on inflation as consumer prices threaten to spiral out of control.
A separate report in Germany this morning is expected to highlight the persistent risks to price stability as the producer price index is expected to increase to 7.5% year on year in July after commodity prices hit record highs over the same period.
The Dollar fell from a six-month high against the Euro yesterday and dropped versus the majority of the higher yielding currencies amid speculation that the U.S currency has risen too quickly to sustain its momentum.
Nevertheless, oil prices retreated yesterday amid reports that Hurricane Fay will miss refineries and platforms in the Gulf and Mexico, which account for a fifth of U.S oil production.
The Dollar has increased significantly against all of the 16 most actively traded currencies in August on speculation that central banks around the world will lower interest rates as economic growth stalls and commodity prices fall from record levels.
Data Released 19th August
GER 07:00 Producer Price Index (July)
GER 10:00 ZEW Expectations Balance (August)
- Current Expectations
U.S 13:30 Housing Starts (July)
- Permits
U.S 13:30 Producer Price Index (July)
- Core PPI
written by Adam Solomon
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- The Pound declines as UK mortgage approvals fall to the lowest level since records began in 1999
- The Pound declines against the majors after UK house prices drop by the most since 2002
- The Pound plummets to the lowest level on record against the Euro as UK house prices decline and inflation stagnates
