The Pound rose above the $2.00 barrier against the Dollar yesterday and also picked up some unlikely gains versus the Euro despite UK mortgage approvals falling by a third in February as higher credit costs deterred homebuyers.
The report from the British Bankers’ Association showed that lenders granted just 43,870 loans last month, down 33% from this stage in 2007. Concerns are growing within the Bank of England that the UK housing slump may deepen further over the coming months as few buyers can afford homes given the tightening credit conditions.
The BoE’s monetary policy committee have lowered the benchmark lending rate on two occasions since December but former policy makers, DeAnne Julius, said yesterday that the Central Bank isn’t cutting rates fast enough.
In a live television interview, the former MPC member said that the Bank were behind the curve and criticized Mervyn King’s handling of the credit crisis, insisting that she would have voted for a 50 basis point cut in April.
The Pound has declined against the majors this morning, dropping under $2.00 versus the U.S Dollar as a report from the Nationwide Building Society showed that UK house prices rose at the slowest pace in over a decade after mortgage rates increased despite a modest drop in interest rates.
In a related article, the Times newspaper reported that Nationwide is planning to turn away business in an attempt to gain greater control over the amount that it lends and is therefore poised to increase rates on tracker deals by more than 50 basis points.
Despite falling interest rates and increased liquidity injections, lenders are reluctant to offer new loans while consumer confidence dwindles and threatens to curtail the pace of economic growth.
Despite making marginal gains against the majors yesterday, the negative sentiment surrounding the U.S economy means that the Dollar is poised to record its biggest weekly decline in a month against the Euro amid speculation that the Fed will lower interest rates by a further 50 basis points.
The U.S currency has fallen 0.7% against the Pound this week and tested the $2.00 barrier on numerous occasions with the focus today falling on the final estimate of regional consumer spending.
The Michigan sentiment index is forecast to decline in March while the Fed’s preferred measure of inflation probably increased by smaller amount in February.
The Euro fell for the time in three days against the Dollar yesterday while the single currency also registered losses versus 13 out of the 16 most actively traded currencies amid speculation that the credit crisis will spread to Europe.
One of the region’s biggest banks, UBS AG, will probably report a loss this quarter and that prompted ECB policy maker Guy Quaden to comment on the potential impact from a the U.S credit crunch.
The Central Bank have adopted a staunchly hawkish stance on inflation this year but the rising value of the Euro combined with the instability surrounding financial markets may see a change in sentiment over the coming months as a host of lenders will report losses linked to U.S subprime mortgages.
Nevertheless, the medium term outlook suggests that the Euro will break the 1.600 barrier against the Dollar and continue to make gains versus the Pound as ECB fail to express any real concern about the current level of the currency.
Data Released 28th March
U.K 09:30 Gross Domestic Product (Q4)
U.K 09:30 Current Account (Q4)
U.S 12:30 Personal Income (February)
– Coren PCE
U.S 14:00 Michigan Sentiment (March Final)
written by Adam Solomon
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