Foreign Exchange: Pound Struggles Against The Euro

Published: 30 July 2010 By MoneyHighStreet Staff Leave a Comment

The Pound struggled to break above 1.20 against the Euro although it further to tested resistance levels above $1.56 against the US Dollar.

Foreign ExchangeThe Pound against the US Dollar is at the highest level since February, but it continues to struggle against the Euro, losing 0.4% on the foreign exchange markets on the day.

As another pointer that the recovery in the UK housing market is waning, house prices fell for the first time in five months in July.

Prices were hit as a result of tighter lending conditions with the Bank of  England reporting that banks approved fewer mortgage applications than expected in June, with home loans down to 47,643, the lowest total in four months.

The UK housing recovery is also being hit as consumers prepare for the forthcoming Government public spending cuts.

The Bank of England Governor Mervyn King told the Treasury Select Committee on Wednesday that “the gradual improvement in credit conditions that was evident earlier in the year seems to have come to a halt in recent months.”

With the deteriorating state of the UK property market the idea of an interest rate increase will have all but disappeared. Policy makers instead will focus on maintaining the emergency stimulus measures.

Ed Stansfield, chief property economist at Capital Economics Ltd, said that “there must be a sense that the rally in house prices that we’ve seen over the last year was built on some pretty shaky foundations. The market is extremely vulnerable to falling back over the remainder of this year.”

This gradual deterioration in the economic recovery will knock the strength of Sterling.

UK stocks were virtually unchanged by the close of trading last night, as the benchmark FTSE 100 Index slipped just 0.1%. This is some 8.8% below this year’s high in April, amid concern that growth will be curtailed by austerity measures from European governments.

EUR/USD

The Euro strengthened against the US Dollar yesterday, as well as against a basket of currencies, including the Pound, as the European economic recovery edges ahead of the US and creates demand for the Euro.

Confidence in the European economic outlook rose to the highest level in two years in July, led by a recovery in services and industrial production.

The single currency has enjoyed a positive week against the majors, following the European bank stress test results released last Friday, which showed that only 7 out of the 91 banks tested needed to raise capital.

In contrast, the US economic recovery seems to be losing momentum. The Euro climbed to $1.31 for the first time in almost three months by the close of trading last night.

Market Analysis by Adam Solomon, TorFX

Any opinions expressed in this document are aimed at helping readers understand foreign exchange market conditions and developing trends. Readers are wholly responsible for their own trading decisions.

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