The pound continues to hold on to recent gains against the euro despite worsening economic data in the UK as the markets continue to focus on the sovereign debt crisis afflicting the euro zone.
The Bank of England reported this morning that the number of new mortgages being approved for house buyers has fallen for the sixth month in a row. There were 47,185 mortgage approvals in October, down slightly from September’s level and 17% lower than in October 2009. The data suggests that house sales will be stuck in a rut in the coming months.
Separately, the property website Hometrack said the average home was now taking nearly 10 weeks to sell. This, it said, was the longest sale time for 17 months.
“Concerns over the economic outlook on the back of recent spending cuts, together with widespread expectations that house prices are set for a period of retrenchment, are driving the continued weakness in demand.”
The euro was steadier against the dollar as markets opened a day after European ministers finally agreed a bail out for the Irish Republic. Ministers have reached an agreement over a bail out worth about 85 billion euros.
The deal will see 35 billion euros go towards propping up the Irish banking system whilst the remaining 50 billion euro balance will help the Irish government’s day to day spending.
The markets remain unconvinced with yields on ten year bonds in the Republic of Ireland, Portugal, Spain, Greece, Belgium and Italy largely unchanged as reaction to the bail out was largely muted.
In an effort to stop the ‘contagion’ sweeping the markets, EU President Jose Manuel Barroso has denied that Portugal is next in line for an aid package.
Mr Barroso said the reports were “absolutely false, completely false”. The Portuguese government has made similar denials. Speculation that Portugal would follow the Irish Republic in asking for help has been rising this week. Portugal approved its 2011 budget on Friday which aims to cut its debts.
The budget seeks to cut the country’s deficit from 7.3% of economic output this year to 4.6% in 2011.
Under the measures in the budget, public spending will be cut and VAT increased to a maximum rate of 23%.
His Spanish counterpart Jose Luis Rodriguez Zapatero has also moved to dismiss speculation that his country may be forced to seek EU aid.
He said he ruled out “absolutely” any bail out of Spain.
“I am not delivering a message of confidence just because I want to, but because of concrete facts,” he said.
The continued uncertainity in the markets over the euro zone sovereign debt crisis and of further military action in the Korean peninsula will continue to attract investors to the ‘safe havens’ status of the US dollar.
Until the markets are convinced that the sovereign debt crisis in the euro zone is over, the euro is likely to remain ‘on the back foot’ and lose ground against the US dollar in particular. Further euro losses against the pound may be limited by a worsening economic outlook for the UK.
