The Pound slipped below 1.8400 against the Dollar last night and the UK currency looks poised for a further dip towards the support at 1.8300 amid speculation of U.S interest rate increase over the coming months.
The Pound also remained subdued against the Euro yesterday and also registered losses versus a basket of currencies as a report from the British Bankers’ Association showed that mortgage approvals held close to the lowest level in at least eleven years last month.
UK banks granted 22,448 loans for home purchases in July, down 65% from the second quarter in 2007, as property values slumped and tighter lending conditions made it difficult for consumers to acquire credit.
The reading is slightly up from the previous month as loans plunged to the lowest level since records began in 1997 but it would be incredibly optimistic to believe that the slump in the property market has peaked.
The Deputy Governor of the Bank of England, Charles Bean, said in a statement just last week that the credit crunch will “drag on for some considerable time” while the director of statistics at the BAA said yesterday that “overall approval activity will remain low.”
The Pound subsequently extended its decline against the Dollar, falling to a low of $1.8337 in the aftermath of the report amid speculation that UK banks will continue to curb lending while credit losses linked to the collapse of the U.S subprime mortgage market will climb above £250 billion.
The credit crunch combined with the fastest pace of consumer price inflation in more than 10-years has brought the UK economic growth to a standstill in the second quarter and all but erased support for Gordon Brown’s Labour Government as he pledges to unveil new measures to revive the economy.
The Euro remained relatively unchanged versus the Pound yesterday but the single currency struggled to cling on to the previous day’s gains made against the Dollar after the Ifo sentiment index showed that German business and consumer confidence fell more than initial forecasts.
The Munich based survey dropped to the lowest level in three years while the Gfk gauge of consumer confidence slumped to a five year low and the reports combined provide a gloomy outlook for Europe’s largest economy as growth slips closer towards contraction.
Oil prices have retreated from a record $147.27 a barrel but they are still up 60% over the past 12 months and that is hurting business confidence as companies shed jobs while a global slowdown is crimping demand for European exports.
The Dollar rose to a fresh six month high against the Euro yesterday also rally to the highest level in 22 months versus the Pound amid speculation that a global economic slowdown will tempt investors back to the greenback.
In terms of economic data, the Dollar also found support after a gauge of U.S consumer confidence improved for a second consecutive month in August after petrol prices retreated and the slump in property values eased.
The Conference Board’s index rose to a reading of 56.9, higher than initial forecasts, while house prices in 20 major cities fell at a slower pace for the fourth straight month in June as new home sales reached a three month high last month.
Elsewhere, the Dollar also found support following the publication of the Minutes from the Federal Reserve’s last meeting where policy makers agreed that there next change in interest rates will be to raise them.
Data Released 27th August
GER 07:00 Import Prices (July)
U.S 13:30 Durable Goods Orders (July)
written by Adam Solomon
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