by Adam Solomon
The Pound has continued to test resistance levels above $1.56 against the Dollar, the highest level since February, but the UK currency has struggled to break above 1.20 versus the Euro, losing 0.4% on the day. UK housing data showed that prices fell for the first time in five months in July, amid tighter lending conditions and waning consumer confidence, as the government prepares to introduce spending cuts.
The average cost of a home in Britain fell 0.5% from June, another sign that the fabled recovery in the UK property market is losing momentum. The Bank of England released figures yesterday to show that banks approved fewer mortgage applications than expected in June, with home loans down to 47,643, the lowest total in four months.
The UK housing recovery has shown signs of losing momentum in recent months, as consumers prepare for the most aggressive public spending cuts in the post-war era. The Nationwide Building Society said this week that house prices fell for the first time in five months in July, while Hometrack Ltd also said this week that the market is at a “turning point.”
The Bank of England Governor Mervyn King told the Treasury Select Committee on Wednesday that “the gradual improvement in credit conditions that was evident earlier in the year seems to have come to a halt in recent months.” The reports on the UK property market this week have all but dispelled the idea of an interest rate increase, as policy makers maintain emergency stimulus measures.
Ed Stansfield, chief property economist at Capital Economics Ltd, said that “there must be a sense that the rally in house prices that we’ve seen over the last year was built on some pretty shaky foundations. The market is extremely vulnerable to falling back over the remainder of this year.” The gradual deterioration in the economic recovery is expected to sap Sterling sentiment, especially if there are doubts over the prospect of higher interest rates.
The Pound has hit resistance levels close to $1.5650 against the Dollar, while the UK currency retreated to lows around 1.1930, before a mild correction early this morning. UK stocks were virtually unchanged by the close of trading last night, as the benchmark FTSE 100 Index slipped just 0.1%. The gauge is still 8.8% below this year’s high on April 15th, amid concern that growth will be curbed by austerity measures from European governments.
The Euro rose sharply against the U.S Dollar yesterday, while the single currency has also bounced back against a basket of currencies, including the Pound, as the European economic recovery edges ahead of the U.S and spurs demand for the Euro. A survey released earlier today showed that European confidence in the economic outlook rose to the highest level in two years in July, led by a recovery in services and industrial production.
The Euro has risen to the highest level against the Dollar since May 10th when officials in the Euro-zone announced a $1 trillion bailout package to protect struggling financial institutions against the sovereign debt crisis. The single currency has enjoyed a productive week against the majors, following the European bank stress test results released last Friday, which showed that only 7 out of the 91 banks tested needed to raise capital.
On the other hand, the U.S economic recovery appears to be losing momentum and data released today is expected to show that the preliminary estimate for U.S gross domestic product in the second quarter slowed to 2.5%, from 2.7% in the first three months of the year. The Euro climbed to $1.31 for the first time in almost three months by the close of trading last night.
U.K 00:01 – Gfk Consumer Confidence (July)
EU 10:00 – HICP Flash (July)
EU 10:00 – Unemployment (June)
U.S 13:30 – Employment Costs (Q2)
U.S 13:30 – GDP (Q2)
U.S 14:45 – Chicago PMI (July)
U.S 14:55 – Michigan Sentiment (July Final)
© TorFX. Unauthorised copying or re-wording of this blog content is prohibited. The copyright of this content is owned by Tor Currency Exchange Ltd. Any unauthorised copying or re-wording will constitute an infringement of copyright.