The pound remains ‘on the back foot’ against the majority of the 16 most actively traded currencies, weighed down by poor economic data, the political fallout within the coalition government from last week’s local election results and the resounding ‘No’ vote in the AV referendum and the growing realisation that the Bank of England looks set to keep UK interest rates unchanged well into 2012 to offset the effects of the austerity measures introduced by the UK government.
The Halifax reported that UK house prices fell at their fastest rate in 18 months by 1.4% in April compared with March adding that UK property values were continuing a trend of “modest decline”. Prices fell by 3.7% compared with a year ago and were 1.2% down on the previous quarter with the average home now costing £160,395.
The British Retail Consortium (BRC) reported that retail sales jumped 5.2% in April thanks to the warm weather and the back-to-back long weekends. This reversed a 3.5% fall reported for March. But the BRC warned that the underlying picture remained one of weak spending and retailers under great pressure.
As recently as last week, the euro was at a 14 month high against the pound and a 17 month high against the US dollar. Yet another breakout of the sovereign debt crisis afflicting its periphery has seen it lose some ground. Negotiations continue with Portugal to tie up the proposed €78 billion bailout whilst ratings agency Standard & Poor’s downgraded Greece’s credit rating, already at ‘junk’ status from BB- to B. Fellow ratings agency Moody’s also threatened to cut Greece’s rating by several notches.
The Euro received some support yesterday from data showing that the German economy, by far and away the most important economy in the euro zone where exports surged in March to their highest level since records began in 1950 as the growing global economy lifted demand for its products and services. In April, Germany’s exports for the month totalled €98.3 billion, 7.3% higher than the previous record figure registered in February 2011.
The latest German export figures provide yet more evidence of a “two speed” euro zone, with the German and French economies continuing to grow strongly, while others, such as Greece, Ireland and Portugal are struggling against a backdrop of high national debt levels.
The dollar continues its upwards trajectory after reaching a 3 year low on a trade weighted index basis in late April. At the end of last week, data showed that US non-farm payrolls rose by a higher than expected 244,000 in the month of April, the highest private sector job creation in 2 years in the US.
Commentary by Tony Redondo
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