The pound gained over 1% against the euro yesterday and temporarily hit a new 2 month high against the US dollar.
The Halifax reported that UK house prices rose by 0.8% in January compared with the previous month but the lender said that prices had fallen 2.4% compared with January 2010. Overall during 2011, the lender is expecting little change in property values, although others have predicted prices to dip.
The UK’s services sector followed the manufacturing and construction data published earlier this week and reported a strong rebound in activity in January. The Markit/CIPS Business Activity Index for the services sector rose to 54.5 in January from 49.7 in December. A value above 50 indicates growth in activity. The index rose to its highest level in eight months, despite the effects of the increase in value added tax.
Optimism over short term prospects continues to improve, with the gauge of the one-year outlook rising steadily since its low point in June 2010 but this improvement has not prevented service providers from cutting back on staff.
The euro took a tumble after a less hawkish tone from European Central Bank (ECB) President Trichet at his press conference yesterday. This was with respect to the current levels of euro zone inflation which provoked the realisation that a rate hike in the near term was unlikely. Trichet said inflation risks are “broadly balanced”, far more dovish than the market had expected.
Data showing America’s services sector grew at its fastest pace since 2005 also damaged the euro, causing the euro’s biggest slump against the dollar since last November. January’s ISM services index climbed to 59.4 from 57.1 while the number of Americans filing jobless claims for the first time fell to 415,000 from an upwardly revised 457,000 the week before.
Commentary by Tony Redondo
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