The pound picked up yesterday against the euro and US dollar ahead of key data today from Ireland.
In UK news, the Nationwide reported that UK house prices rose by 0.5% in March, dragging the annual change back into positive territory. Their data shows that, on average, the cost of a UK house has now increased in three of the past four months.
“The outlook remains uncertain, but all things considered, this is unlikely to mark the beginning of a strong upturn in prices,” Robert Gardner, Nationwide’s chief economist, said.
It also issued a warning against widely anticipated increases in interest rates, which Nationwide thinks may exert more of a drag on the household sector than would have been the case before the recession.
It notes that mortgages account for around 85% of household debt and, since 2008, the proportion of mortgages on variable interest rates has risen sharply, from 48% to 62%. That’s mostly due to a rise in the number of people on standard variable rates (SVR),
“If the Bank of England were to increase interest rates to 4.5% by the end of 2013 and wages keep rising at the current pace of 2.3% a year, this would take typical payments on repayment mortgages to 29% of take home pay,” the lender says.
Later this morning, the Irish Central Bank will reveal the result of its latest review of the Irish banking sector, the so called ‘stress tests’. They are expected to show that four banks, Allied Irish Banks, Bank of Ireland, Educational Building Society (EBS) and the Irish Life & Permanent need an extra €30 billion euro’s in capital. The latest capital injection is expected to leave all four institutions in majority government ownership. Money set aside from the EU-IMF bail-out money agreed in November is expected to be used to fund the latest recapitalisation.
If the bill is indeed 30 billion euro’s, it would take the total amount poured into the Irish banks since the financial crisis began to approximately 73 billion euro’s, almost 50% of the Irish economy’s annual output.
The US dollar lost some of its recent gains against the euro on the latest comments from an European Central Bank (ECB) official about an imminent rate hike in the euro zone. ECB board member Lorenzo Bini Smaghi boosted the euro after he suggested the central bank should introduce a series of gradual rates hikes in the euro zone.
However, the dollar may get a boost today as a third member of the US Federal Reserve, Thomas Hoenig joined Charles Plosser and James Bullard in calling for the Fed to get on with tightening current ultra loose monetary policy.
Economic data out of the US has improved of late and lifted sentiment about the US economic outlook. Outplacement consulting firm Challenger, Gray & Christmas said employers planned to cut fewer jobs than forecast in March. A little over 41,500 jobs went this month, down 18% on February.
Commentary by Tony Redondo
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