Sterling’s misery continues
Tuesday saw our ‘Great’ British Pound hit new record lows against the Euro. This was largely due to the fact that the House Price index fell to a 30 year low, suggesting that the UK’s housing market could be worsening far quicker than expected – coupled with a noted drop in retail sales being released and a lower than expected, yet positive, consumer price index reading.
We also saw a two month low against the US dollar, following a rare piece of positive news from across the pond that there has been an improvement in regional manufacturing and a rise in producer prices. Is this the start of more dollar positive news to be released?
UK Housing – no longer a sure investment
Yesterday’s reading from the Royal Institute of Chartered Surveyors confirmed that the net balance of British house prices fell from a poor –65.7 in February to a worryingly low –78.5 in March. This had a negative effect on the pound against almost all major currencies, losing over half a percent against the Euro, seeing trading levels drop to these all time lows.
Since the House Price Index survey began in January 1978 levels have never been so low, prompting fears amongst major analysts that the housing market will continue to suffer at an increased rate. These analysts do believe that this will without doubt take its toll on the broader economy."This is a clear signal that things in the housing market are getting worse - the mid-term trend in sterling is to remain lower." said Ian Stannard, senior foreign exchange strategist at BNP Paribas.
British retail sales also took a turn for the worse, it was revealed on Tuesday, falling again in March. The RICS data suggested weakness in the British economy which may call for further monetary easing from the Bank of England – this decision will be made even easier for the BoE because of the unexpectedly steady British consumer prices (CPI) figures also released yesterday.
The CPI figures are suggesting that inflation in the UK may be calming, pointing to these raising expectations of a further 4/5 interest rate cuts from the BoE following their conservative 25 basis point cut last week.
"Better behaved inflation would provide the Bank of England a freer hand to ease monetary policy in order to cushion the economic slowdown," Bank of America said in a research note.
Analysts at Barclays Capital said they saw a 50-50 chance that the BoE will cut rates by a further 25 basis points next month, with a 100 percent chance of a cut in June.
What this all means to you
This Sterling negative data means that you will probably see its value continue fall at an alarmingly quick rate against almost all major currencies, as was predicted for the remainder of 2008. If you are, like many others, are thinking about holding out for a couple more months in the hope that rates begin to improve, by the time you decide to trade it could be too late and that dream of a holiday home in the sun could have become too expensive.
You have many options to secure your currency with us here at Foreign Currency Direct. Whilst the trading levels are still where they are, be sure to keep in contact with your account manager to discuss your options in more detail.
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