Pound Soft on Housing Bubble Fears
Housing prices will continue to rise, according to a survey by the Royal Institute of Chartered Surveyors (RICS). The net balance of surveyors expecting a rise in home value over the coming month currently stands at 50%. The news will only serve to increase fears that the UK is entering a housing bubble.
Meanwhile, Eurozone house prices rose at the fastest pace since the first quarter of 2008 in the third quarter of 2015. According to Eurostat, the European Union (EU’s) statistics agency, house prices rose by 1.0% during the three month period to September, which represents a 2.3% year-on-year increase. The Euro is performing strongly on this tentative sign of recovery, although there are also fears that steep rises in certain parts of the Eurozone could inflate risky price bubbles.
USD Softened by Under-Performing Consumer Price Index
US inflation performed slightly worse-than-expected in December, with the non-core Consumer Price Index rising from 0.5% to 0.7%, just under the 0.8% predicted. While no change was predicted in prices month-on-month (MoM), prices in fact fell -0.1%. The core Consumer Price Index rose from 2.0% to 2.1% as predicted. Energy prices were mainly to blame for the poor performance, which was the slowest growth in seven years.
Flagging Pound Sterling exchange rates have been bolstered today by a strong performance from the UK labour market. Joblessness fell by 99,000 in the three months to November last year, taking the total number of unemployed down to 1.675 million. The unemployment rate now stands at 5.1%, the lowest recorded since the three month period to January 2006. The employment increase of 267,000 is the third biggest ever recorded and the UK now has the highest employment rate, 74%, among 16 to 64 year olds since 1971, since records began.
The news was not entirely positive, however, as wage growth performed even worse-than-expected. Average Weekly Earnings growth was predicted to slow from 2.4% to 2.1% but instead came in at 2.0%.
The GBP/USD exchange rate has since left negative territory, while losses experienced by the GBP/EUR currency pairing are softening towards opening levels.
Pound Sterling to Euro (GBP/EUR) Exchange Rate Losses Eroding on UK Jobs Growth
Despite a slow data day the Euro has nonetheless extended a bullish lead against many of the major currencies. The stock markets have been performing poorly after news from the International Energy Agency that the world’s oil markets could ‘drown in oversupply’ this year, with the German DAX index down -3% as shares in European oil and energy companies tumble.
Regardless of the latest round of global concerns, the common currency has been performing bullishly. This could be attributed to the fact that the Eurozone growth forecast emerged unscathed after the International Monetary Fund (IMF) cut its global outlook for the third time in a year. While the US received a -0.2% cut to its 2016 growth predictions, expectations for the Eurozone remained the same, steadying investor confidence in the currency bloc’s ability to weather the storm of worsening global conditions.
GBP/USD Exchange Rate Rebounding from Seven-Year Low After Dovish Carney Speech
After hitting a seven-year low yesterday, ‘Cable’ opened today to slide even further and is currently trading at a rate not seen since March 2009. The drop in the Pound comes courtesy of Bank of England (BoE) Governor Mark Carney, after he made a dovish set of comments that have all but shattered investor hopes of seeing a UK interest rate increase in 2016. The FTSE 100 index rose 1.7% at close, in a rare performance for the year-to-date, on the prospect of the current cheap credit period extending even further than expected.
Carney had claimed in the middle of 2014 that a rate hike would arrive earlier-than-anticipated by City economists, then stated a year later that the decision over increasing rates would ‘come into sharper relief’ by the end of 2015. In his latest speech, Carney claimed that the year had turned and that ‘now is not yet the time to raise interest rates’.
According to HIS Global Insight Chief Economist, Howard Archer, ‘Given Mark Carney’s cautious tone and the increased possibility that consumer prices will stay lower for longer due to oil price weakness, limited earnings growth and growth headwinds, it is clear that the Bank of England could well delay acting until very late on in 2016, or even 2017.’
Since then the Pound Sterling to US Dollar exchange rate losses have started to contract, thanks to the positive data from the UK labour market.
GBP/EUR, GBP/USD Exchange Rate Forecasts
US Consumer Price Index figures are due out later today and are expected to show a moderate uptick in prices. The European Central Bank meets to decide interest rates tomorrow, with no change to monetary policy expected. Tomorrow’s UK data consists solely of the RICS House Price Balance, which is predicted to show that surveyors believe house prices will continue to rise.
Latest GBP/EUR, GBP/USD Currency Exchange Rates
The Pound Sterling to Euro (GBP/EUR) exchange rate is currently trending around 1.2960, while the Euro to Pound Sterling (EUR/GBP) exchange rate is trading in the region of 0.7716.
The Pound Sterling to US Dollar (GBP/USD) exchange rate is currently trading in the region of 1.4174, while the US Dollar to Pound Sterling (USD/GBP) exchange rate is trending around 0.7056.