Currency news - Housing fears undermine Sterling

Housing fears undermine Sterling - 25-09-07

Sterling was unable to hold above the 2.03 level against the dollar on Monday and weakened back to 2.0220 in US trading. The UK currency weakened further in Asian trading on Tuesday with losses to around 2.01 against the US currency while Sterling also weakened back to near the pivotal 0.70 level against the Euro.

Bank of England MPC member Sentance stated that there are signs that consumer spending is weakening while the inflation drop was an important relief. He also remarked that rising household debt has made consumers more cautious.

Sentence has been one of the most hawkish MPC members over the past year and his comments will certainly reinforce expectations that interest rates are unlikely to increase again, at least in the short term. Any evidence of significant housing-sector deterioration would renew speculation over lower interest rates within the next few months. The UK currency was also undermined by reports that the UK bank deposit protection fund had assets worth less that GBP5mn which would leave it very exposed if there was a significant casualty in the banking sector while the IMF also warned over the UK sub-prime housing sector.

Tim Clayton
Investica Ltd
E-mail: tim.clayton@investica.co.uk
+44 (0) 1452 781001

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