GBPEUR/GBPUSD
The Pound rallied strongly against the Euro yesterday, rising 1.2% in London, while the UK currency also breached resistance around $1.5350 against the U.S Dollar, after an industry report showed that UK home sellers raised asking prices in May by the most in over a year. According to the report from Rightmove Plc buyers’ access to mortgages improved, as banks freed up credit, and the number of properties saturating the market fell.
The average cost of a home in the UK rallied 2.4% from April to £227,441, recording the largest increase since February 2008. Miles Shipside, commercial director of Rightmove, said in an interview yesterday that “a drastic lack of supply is putting upward pressure on prices. There is increased demand among buyers and slightly more mortgage money becoming available.”
The Bank of England have cut interest rate to an historic low of 0.5% and embarked on a period of quantitative easing to get banks lending again. The Central Bank said last week that there have been sigs of ‘modest improvement’ in housing activity, after the number of mortgages approved by banks rose to the highest level in 10-months.
The former Chancellor of the Exchequer Norman Lamont said yesterday that rising home values will be a key element of Britain’s return to economic growth. However, signs of a recovery in the UK property market have been mixed, after prices fell an annual 17.6% in March, according to reports from Lloyds Banking Group Plc. The slump will leave a total of 1.8 million households, or 15% of those with mortgages, in negative equity by the end of 2010.
A separate report from the Royal Institution of Chartered Surveyors showed last week that enquiries from new buyers rose to the highest level since 1999. Bank’s are loosening credit availability, as loans granted for home purchases climbed to 39,230 in March, compared to 37,716 in February.
The Pound climbed for a third straight day against the majority of the 16-most actively traded currencies, as signs that the worst of the recession may be over sent the FTSE 100 Index 2.3% higher. UK stocks gained by the most in over two week, while gilts advanced, as the Bank of England bought government bonds maturing in 10 to 25 years, as part of its program to lower borrowing costs.
The increase in risk appetite saw the Pound rally significantly against the Dollar, after the benchmark FTSE 100 Index soared towards the biggest increase since April 29th, led by a rally in financial shares. Lloyds Banking Group Plc surged 9.9%, after confirming investors will be offered £4 billion of stock this week.
Gareth Berry, an analyst a UBS AG in London, said yesterday that “we see further gains ahead for sterling, especially against the Euro. Investors have focused on the signs of stabilisation emerging from the UK economy”. The Pound’s 20% depreciation over the past year has made Britain the first choice when Schroders Plc started buying real estate in Europe last month.
The UK consumer prices data will be watched closely this morning for further evidence on economic direction and the recent inflation data releases have also tended to be erratic, which could trigger additional Sterling volatility. The overall impact may be limited as the Pound will continue to be influenced strongly by trend in risk appetite.
EUR/USD
The Euro held firm around the significant support level at $1.3420 against the Dollar on Monday and this helped provide a firmer tone for the single currency during the day, as selling pressure eased. European stock markets were generally resilient and the European trade data reported a headline surplus for the first time in close to a year.
The Euro also found support against the Dollar, after ECB governing council member Axel Weber signaled a reluctance to cut interest rates to below 1% and said that any further recovery in the German ZEW Index would help underpin the Euro today. There was no U.S economic data releases yesterday and the improvement in risk appetite saw the Dollar lose momentum during the day.
Data Released 19th May
U.K 09:30 Consumer Price Index (April)
- Retail Price Index
GER 10:00 ZEW Index (May)
U.S 13:30 Housing Starts (April)
- Permits
written by Adam Solomon
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