Sterling falls after poor housing data

Published on in Currency Exchange News by

Yesterday sterling failed to maintain levels hit over the weekend against the US dollar, falling away from the key psychological barrier of $1.60 as traders option levels around the $1.60 mark offered support for the greenback earlier in the week.

The pound was then knocked back as the RICS House Price Balance for July came in well below consensus.  The figure showed a -8% decline, from the predicted figure of 5%.  This was then coupled with the UK BRC Retail Sales monitor for July which came in at 0.5%, down from 1.2% this time last year.

“Today’s survey is in keeping with the recent volatility we have seen in other house price indicators. It also provides some evidence that rising supply will soon begin to test what has been a firm recovery in house prices so far,” said analysts at Barclays

This data release caused sterling to move down to as low as $1.5712, and €1.1962.  However UK Trade Balance figures for June did give some support for Sterling. The figure was better than expected showing a decrease in negative balance from -7.8bn to -£7.4bn.  DCLG UK House price figures year-on-year for June were slightly better showing a rise from 9.8% to 9.9%.  The pound did gain back some ground shortly afterwards, however the looming US Fed meeting which took place at 7.15pm yesterday was causing investors to pair short positions in the USD supporting the dollar.

All eyes were fixed on the US Fed meeting which would be discussing the possibility for further monetary easing.  The speculation was that the U.S. may need to extend their monetary easing in an attempt to boost the economy, but it has decided to use proceeds from its investments in mortgage securities to buy longer-term government debt.  Investors reacted positively but cautiously to the news, and Sterling made some gains back to around $1.5850 as risk appetite returned.

Today sees the Bank of England’s quarterly inflation report.

The BoE is expected to revise down 2011 growth forecasts, largely as a result of fiscal tightening announced in the government’s June budget, but at the same time it is likely to admit inflation will stay above target for a second straight year.

Market participants will be trying to gauge whether UK policymakers are more concerned about the outlook for the economy or the prospect of rising inflation for clues on how much longer UK interest rates will stay at record lows.

Other data today includes UK Jobless Claims and unemployment rate and U.S. Trade Balance as well as their Monthly Budget statement.

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