Despite some poor data out of the UK in recent days, the pound continues to make gains against the euro as the sovereign debt concerns over the euro continue unabated.
The latest disappointment in the UK economic front is from the Halifax who reported this morning that average house prices in Britain fell by 1.3% between November and December and fell a total of 1.6% in the last 12 months.
Halifax chief economist Martin Ellis said he expects limited house price movement in 2011, “but with the risks on the downside.” That echoes a prediction from Halifax’s fellow building society Nationwide that 2011 would see “a relatively stable picture, with the possibility of a small price decline.”
Howard Archer, chief UK and European economist at the analyst group IHS Global Insight, predicts that house prices will fall by 10% from their 2010 peaks, resulting in a 7% fall over 2011, with the average house price on the Halifax measure falling to £152,536.
After two bail outs in six months, speculation that Portugal will need assistance is now so intense that Germany today had to officially deny that it is putting pressure on Portugal to follow the route taken by Ireland and Greece and accept a bail-out from the European Union/IMF rescue fund.
Reports over the weekend suggested that Germany, France and other Northern European states were pushing for Portugal to be rescued sooner rather later because of the destabilising effect on the euro of the continuing uncertainty over its financial health.
The Portuguese government also played down the reports even though the country’s leading newspaper said only a “miracle” could avoid a rescue.
The US dollar continues to strengthen despite the disappointment of last Friday’s below expectations December US payrolls data. US data showed the US economy didn’t add quite as many jobs in December as expected but progress was shown nevertheless. The unemployment rate also edged lower than economists had anticipated.
All in all, the pound seems to be living a charmed life at the moment as the markets seem to consider that the sovereign debt issues afflicting the euro zone are a more potent threat to the global economic recovery than the worsening data in the UK. The warning signs, are however there for a reversal at some point.
Commentary by Tony Redondo, Senior Trader
“Any opinions expressed in this document are those of TorFX analysts. Any analysis and/or forecasts provided are aimed at helping clients understand market conditions and developing trends. Clients are wholly responsible for their own trading decisions.”
