Sterling has dropped against all but two if its sixteen major counterparts following the latest survey by the Royal Institute of Chartered Surveyors revealing a down turn in house prices.

Sterling was trading at the mid-market rate of 1.5795 against the US Dollar and 1.2004 against the Euro at 10.30 am this morning.

Pound Sterling – UK Markets

The survey by the Royal Institute of Chartered Surveyors has revealed that house prices have dropped for the first time since July last year according to the same survey. This has been attributed to fewer buyers entering the market with less mortgage availability and fears of unemployment still rife.
 
A British Retail Consortium survey also showed today that stores posted slower sales growth last month.

Some economists are starting to suggest that Sterling has recently been overbought by investors given the increasing emergence of negative economic news - and that a correction may soon be seen in the rates as investors start to change position.

June’s trade balance figures released this morning however were not as poor as predicted. Whilst forecasts suggested the trade balance would deepen to -£7.60 billion from May’s £4.49 billion, June’s figures were actually -£4.20 billion.

Tomorrow is an important day for Sterling with unemployment and average earnings figures as well as the Bank of England’s quarterly inflation report likely to bring market movement.

US Dollar – US Markets

The Dollar rose against the Euro and Pound on Monday ahead of today’s Federal Reserve meeting.

Although it is widely expected that interest rates will be held, the main focus for markets is the tone of the statement following the meeting and how the outlook for the growth of the economy will be described. Most important will be whether there is any mention of further stimulus measures in the form of bond purchases.

Other possible factors to add to potential Dollar volatility today are data releases on small business optimism, non-farm productivity and labour costs.

Euro – European Markets

It’s a quiet day for the Euro which is likely to respond to wider market movements.

There has been further data from Germany today with the consumer price index coming in better than expected. The prices of seasonal items such as package holidays and air travel are thought to have pushed the price index up 0.3 percent in June from May, and 1.2 percent higher than a year earlier.
Thursday and Friday this week will be the most important for news from the Euro-zone.

Other Currencies – Highlights

The Bank of Japan has announced the decision to keep interest rates on hold today and have not announced any new steps to control the currency.
The Chinese economy is also under scrutiny after it was revealed that the trade surplus rose to an eighteen month high in July to 170 percent from one year earlier. Exports have continued to rise and imports slowed – this will add pressure on the Chinese Government to take further action to allow the currency to appreciate and contribute more to global growth. The US in particular is likely to focus on how to negotiate the unfair advantage of Chinese exports over other economies.

Nigel Hodges www.currencysolutions.co.uk

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