Euro Market Update 2 June 2009
Sterling managed to trade above 1.6400 against the USD for the first time since November 5th 2008, while the UK currency also broke through key resistance level at 1.1574 versus the Euro to record the highest level this year. Gilts also declined amid further evidence that manufacturing and the housing market is showing signs of recovery.
According to recent reports from Hometrack Ltd, U.K. house prices stopped falling in May for the first time in almost two years, adding to recent data from the Nationwide Building Society that the property market slump is beginning to ease.
Average prices in England and Wales held steady during the month of May at £155,000, after declining 0.3% in April. Home values have dropped 9.6% over the past year but the Bank of England's aggressive easing of monetary policy seems to be slowly lifting the economy out of the worst slump in at least thirty years.
Although the outcome of the reports provides some optimism that the UK economy is through the worst of the recession, Richard Donnell, director of research at Hometrack Ltd, said in a statement that "the outlook for the economy remains far from certain. It is too early to rule out future price falls." Other economic indicators are also suggesting that the recession may be past its worse phase.
The main focus in terms of economic data this week falls on the Bank of England and European central bank interested rate meetings on Thursday afternoon.
The Bank of England are widely expected to keep interest rates unchanged at a record low of 0.5% and continue a £125 billion asset insurance program to assist in the recovery.
Former Bank of England policy maker David Blanchflower confirmed in a statement yesterday that he still sees "risks to the downside" in the U.K. economy and sighted unemployment as the chief concern. Blanchflower warned that there is likely to be "big increases" in unemployment this year with jobless claims set to soar by an average of 100,000 a month "for the next year or so".
Blanchflower also mentioned that it was too early to gauge whether the Bank of England's aggressive policies are helping counter the worst recession in a generation.
Blanchflower spoke the day after he stepped down from a three-year term on the Bank's monetary policy committee, where he predicted as early as November 2007 that the UK faced a recession - well before his esteemed colleagues. However, his comments yesterday did little to curtail the Pound's momentum, as the UK currency continued to advance against the majority of the 16-most actively traded currencies.