House prices drop away

The pound plummeted on early trading yesterday taking sizeable losses across the board. By 08:30 the pound was down almost a percent against most of the major currencies and we slid later to a new all time low against the euro.

UK House Prices Plunge

Halifax, the country’s largest mortgage lender, revealed yesterday that March house prices dropped by 2.5 per cent, the biggest monthly fall for 15 years and significantly weaker than the expected 0.4 percent decline. It suggests that the weakness in the British housing market may be accelerating and adds to the case that we may see a Bank of England interest rate cut as soon as tomorrow. “We're in for a long period of house prices falling or not growing at all,'” said George Buckley, chief U.K. economist at Deutsche Bank in London. “It's another reason for the Bank of England to cut interest rates this week.”

The weak data was probably the spark for the pounds weakness on a day which was otherwise particularly quiet for data releases.

Taking it a step further some analysts are suggesting that the bank may need to do more. Chris Turner, head of FX strategy at ING said “It's raining bad news on the UK. There's now speculation that the MPC could cut rates by 50 basis points rather than 25 basis points."

Global Crunch Losses To Hit $1 Trillion

Other news came from the International Monetary Fund IMF in the shape of the twice-yearly Global financial Stability Report. It highlighted that the losses from the credit crisis by financial institutions worldwide are set to balloon to almost $1 trillion threatening to trigger severe economic fallout.

The IMF sounded an alert over the danger that banks’ escalating losses, along with credit market uncertainties, could now spark a vicious downward spiral as they weaken economies and asset prices, leading to higher unemployment, more loan defaults and still deeper losses.
From the currency perspective this really supports the notion that things are probably going to get worse before they get better and the pound is likely to remain under pressure into the medium term.

Poor String of US Data

The caution from the IMF came at the same time as the number of Americans signing contracts to buy previously owned homes declined more than forecast in February, indicating the U.S. real-estate recession will extend into a third year.

It was also reported that confidence among US small businesses fell in March to the lowest level since 1980. The National Federation of Independent Business Optimism Index fell to its lowest reading since 1980 and highlighted that the readings pointed to recession.

Later today sees Nationwide Consumer Confidence data. German trade data and the Bank of Japan meet to decide on interest rates; expectation is to stay on hold. European GDP is the major release out at 10:00 whilst there are a few minor US releases this afternoon