Yesterday’s Trading
Yesterday began with the market eagerly anticipating the release of the Bank of England minutes from this month’s Interest Rate setting meeting at 9.30am. Most analysts were expecting that the 25 basis point cut was a unanimous 9-0 decision, and that this would indicate that the BoE were on course to continue regular cuts throughout the year to help combat the results of the much publicised worldwide credit crisis.
The results were duly released and caused much surprise as the first three way split for 2 years was announced. 6 members voted as expected for a 25 basis point cut, 1 vote was actually for a 50 point cut, and the remaining 2 votes were surprisingly for a rate hold.
The 2 votes for a hold were taken as a clear sign that cuts would not be quite as aggressive as some had expected following the lower than anticipated inflation figure earlier this month, and Sterling climbed across the board against a basket of currencies.
However upon further analysis of the minutes it became apparent that the two votes to hold were only relating to the timing of the next cut and not to the actual chance of more cuts:
“Overall the market still wants to be bearish on Sterling. The camp that voted for unchanged - that vote was more about timing as opposed to not wanting further easing. We are still looking for a 25 basis point cut in June,” said Divyang Shah, chief strategist at CBA.
Sterling dropped away from the session highs achieved after the minute’s release, finishing the day 0.25% down against the Euro, and 0.8% down against the US Dollar.
In further bad news for Sterling, there was an announcement from the British Bankers’ Association that mortgage approvals slumped to a record low in March, down nearly 50 percent on the same time last year, and down to the lowest levels since the series began in 1997.
“Approvals have fallen very sharply, reflecting a combination of both lower supply and lower demand. The house price outlook is very negative,” said George Buckley, chief UK economist at Deutsche Bank.
This data adds to the feeling that the BoE needs to cut interest rates further to stave off a housing crash and try and stimulate some growth, and hence is very negative for the Pound.
“We believe that the economic situation will deteriorate markedly due to household sector strife and anticipate that the BoE will cut rates 25 basis points in June with rates below 4% in early 2009” ING said in a research note.
As if Sterling was not experiencing enough woes, the quarterly poll from Reuters of economic growth, showed that growth was expected of 1.7%, down from expectations of 1.9% in March. This is a sharp slowdown from the 3.0% growth seen in 2007, although the probability of a British recession remains low, with only a 30% chance within the next 12 months.
With Sterling seemingly likely to continue its slide, with more interest rate cuts anticipated, a weakening house market and slowing economic growth, it would seem prudent to pay very close attention if you have an upcoming currency requirement. This week’s losses for Sterling mean an additional £2,500 needs to be found for a €200,000 property, in only 3 days worth of trading. Give us a call to discuss how we can help protect you against the markets movement even if you do not require your currency straight away.
The day ahead
Today could be a very busy day on the currency markets, with multiple releases home and abroad.
In the UK the Nationwide House price survey at 8am will give a key insight into the housing market and could further dampen the economic outlook, if it follows the recent 2.5% drop from the Halifax. This is followed at 9.30am by UK Retail Sales figures – another key indicator of consumer reaction to the current credit problems.
In the Eurozone, we have the release of Current Account figures at 9.00am and a speach from ECB president Jean Claude Trichet at 13.30pm. The already strong Euro could gather further momentum if Mr Trichet has further positive news.
In the US we have Jobless claims at 13.30pm and New Homes figures at 15.00pm. Both potentially very important figures, given a recent poll of economists stated that the majority considered the US to already be in the midst of a recession.
It could be best to keep in close touch with your account manager today to make sure you are kept well informed of these releases and the potential effects they could have on your purchase.
And finally...
Today sees many parents struggling with their childcare arrangements as upwards of 30% of schools in the UK are shut due to a strike from some members of the National Union of Teachers.
The teachers in question – a relatively small percentage of the NUT’s overall membership have chosen to strike over pay, as the government continue to restrict pay rises to public sector workers.
The worst affected areas are due to be around Leeds, Cardiff, Suffolk and Cumbria, with more than 1 in 3 schools due to be completely closed.
If you are fed up with the UK government either, not paying you what you deserve if you work in education, or causing you unnecessary aggravation if you are a parent in one of the affected areas, then why not visit our worldwide property website www.propertyline.co.uk and see if you can find that perfect escape abroad?
If you have any questions regarding this report, or wish to discuss an upcoming requirement with an experienced broker that will talk on your level, please email me at djw@currencies.co.uk providing a telephone number and i will get in touch straight away.
Have a great day and thanks for reading!
Daniel Wright
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