The Pound declined to the lowest level in almost three months against the Euro yesterday, dropping through the support at 1.2500 by the close of trading last night, amid speculation that the escalating slump in the housing sector will force the Bank of England to cut interest rates.
The UK currency also plunged to a near two-year low against the Dollar following reports that Taylor Wimpey Plc, Britain’s largest homebuilder, posted a loss of £1.4 billion in the first six months of 2008 and added to concerns that the economy is hurtling towards a recession.
The slowdown in activity has forced many home builders, including Taylor Wimpey, to shed jobs and helped pushed unemployment higher as the economy grinds to a standstill following the most widespread slump in housing for 30-years.
The Pound has fallen to the lowest level since June 9th versus the Euro and is headed for the biggest monthly loss against the Dollar since October 1992 as the focus this morning switches to the Nationwide Housing index and the report is expected to confirm that prices slipped for a ninth month.
The Euro rallied against the Pound yesterday and also registered gains versus the Dollar after ECB governing council member Axel Weber rejected any calls for a “premature” reduction in interest rates while crude oil prices increased for a second day on concerns of a Tropical Storm approaching the Gulf of Mexico.
In an interview with Journalists yesterday, Weber said that there is no room for a cut in borrowing costs in the short-term and insisted that policy makers would need to raise interest rates once the economy recovers a state of contraction.
The preliminary reports indicate that European economic growth slipped into negative territory in the second quarter and the gloomy tone of recent data suggests that growth may not recover in the third, which would bring about Europe’s first recession since the Euro’s introduction in 1999.
Nevertheless, the ECB has maintained a relentlessly hawkish stance on monetary policy and Weber’s comments yesterday show that policy makers are still very focused on fighting inflation even at the risk of an economic slump.
The Euro’s resolve will surely be tested this morning as the EC sentiment index is expected to confirm that growth in services and manufacturing slipped deeper into negative territory this month while the M3 money supply index may show that inflationary pressures eased in July.
The Dollar’s momentum against the Pound shows few signs of slowing as the U.S currency briefly dipped under 1.8300 by the close of trading last night after orders for U.S durable goods unexpectedly rose in July.
The report from the Commerce Department showed that orders increased 1.3% to match the previous month’s rise as demand from abroad boosted exports and helped companies cope with a slump in U.S consumer spending.
Data Released 28th August
U.K 07:00 Nationwide House Price Survey (August)
GER 09:00 Unemployment (August)
EU 09:00 M3 Money Supply (July)
- 3 Month Moving Average
EU 10:00 EU Economic Sentiment (August)
- Consumer / Industrial / Services
EU 10:00 Business Climate Index (August)
U.K 11:00 CBI Distributive Trade Survey (August)
U.S 13:30 Gross Domestic Product (Q2 – 2nd Estimate)
- Deflator
U.S 13:30 Weekly Jobless Claims (w/e 23rd August)
written by Adam Solomon
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