The pound fell at the start of the trading week as the markets continued to digest the implications of the latest missives from the Bank of England (BoE) at the end of last week which seem not only to rule out any chance of an early increase in UK interest rates but do not rule out any further Quantitative Easing (QE), the process by which the BoE buys private sector bonds in order to provide liquidity into the markets in times of trouble. The clear implication is the that the BoE remain concerned about the potential for a ‘double dip’ recession in the UK.
As if to underline the fact on a slow news day, house price data group Hometrack reported that UK house prices fell again in June as people selling their homes became more realistic about how much they could get for them. House prices edged 0.1% lower during the month, the same as the decline seen in May, according to the Hometrack data, which also noted that sales volumes climbed by 10.6% during June after a subdued May.
“The improvement in sales volumes is largely the result of a bounce back in activity following a subdued May market, but it also a reflection of lower prices and greater realism by sellers over achievable pricing levels,” Hometrack said.
The euro and Greece will be the central story in the currency markets today as it has been for several weeks as investors grip their desks and hope (beyond hope?) for a happy resolution to the Greek debt crisis. Yesterday saw a hardening of expectations that the Greek Parliament will vote through a second programme of austerity cuts today on the back of definite signals from both France and Germany that a private sector contribution to the Greek bailout will take place. That doesn’t dispel the key question to this saga and that is how will Greece generate growth as huge sums of its public budget are taken out of the economy? For the time being, however, traders look prepared to put such worries aside.
The euro continues to make gains ahead of the key vote later today in the Greek parliament.
In the US, the dollar continues to weaken as measured by the “dollar index” – an index of the dollar against the US’s most significant trading partners after disappointingly weak consumer spending numbers.
Commentary by Tony Redondo
“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.”
