RTTNews - During early deals on Friday, the pound surged up to new multi-month highs against its US and Japanese counterparts after a report said that UK house prices rose unexpectedly in May to record the largest increase since October 2007, reviving hopes that the UK economy is on the road to recovery.
U.K. house prices rose 1.2% in May from the prior month, reversing a 0.3% decline reported in April, the Nationwide Building Society reported. Economists were looking for a monthly 0.9% decline. The price of a typical house totaled GBP 154,016 compared to GBP 151,861 in April.
Year-on-year, house prices dropped 11.3% in May. This was slower than the 15% decrease seen in April and 13.7% decline expected by economists.
Although the short-term trend in house prices has clearly improved from where it was at the beginning of the year, it is still too early to say that the market is turning definitively, Martin Gahbauer, Nationwide's Chief Economist said.
The pound also received a boost as data today showed the UK consumer confidence matched the highest level in almost a three year as people become more optimistic that they can weather a recession.
A monthly survey from the research group GfK NOP showed that consumer confidence in the U.K. stood stable at minus 27 in May. Economists had expected the index to rise to minus 25.
This is still very low historically, but is at least standing firm in the face of continuing depressed markets and May's warnings of a possible pandemic, Racheal Joy in the consumer confidence team at GfK NOP said.
Sterling has not just strengthened against the yen but hit its highest level since early November. The sterling reached 155.78 against the yen with 157.5 seen as the next upside target level. At yesterday's New York session close, the pound-yen pair was quoted at 154.43.
Lower yielding currencies like the yen and the dollar suffered during this week as the the nuclear test by the North-Korea unsettled investors. The yen slid 3.8 per cent against the pound and 2.6 percent against the euro this week.
Positive data from Japan and Germany weighed on the stock markets across the globe today.
A government report today showed that Japanese industrial production jumped at its fastest pace in 56 years to 5.2 percent in April. Economists had been expecting the output to rise 3.3 percent in the month.
The pound advanced 1.5% against the dollar since yesterday and climbed to a new multi-month high of 1.6100 today. On the upside, the next likely target for the pair is seen around the 1.62 level. At yesterday's New York session close, the pair was quoted at 1.5944.
The dollar is generally weaker today as the latest data showed that the U.S. government's unemployment rolls swelled once again, reaching another record high. Adding to dollar's slide, Dallas Federal Reserve Bank President Richard Fisher said that it will be a slow slog to economic recovery, although inflation should not be a concern for some time. He also said that the actions taken by the Federal Reserve in the financial crisis were effective in preventing the economy from falling into a depression.
Today at 8:30 am ET, all eyes will be on the US preliminary first quarter GDP report. The report is likely to show that the U.S. economy contracted at a 5.5% rate in the quarter.
Thereafter, the results of the Institute of Supply Management-Chicago's business survey and Reuters/University of Michigan's final report on the consumer sentiment index-both for the month of May have been scheduled for release. Economists expect the business barometer index based on the survey to come in at 42 and the consumer confidence is expected to rise in the month, with economists forecasting an increase in the index to 68 from the mid-month reading of 67.9.
The pound weakened to a 3-day low of 1.7229 against the franc in early Asian dealings but recovered the losses in the later part of the session. The pound-franc pair hit as high as 1.7376 by 4:15 am ET, compared to yesterday's New York session closing value of 1.7293. If the UK currency rises further, 1.748 is seen as the next likely target level.
UK's cable rebounded to 0.8711 against the euro by 3:20 am ET Friday, after having hit a 2-day low of 0.8773 during today's early Asian trading. The cable may likely find its resistance near the 0.865 level, if it rises further. The euro-pound pair closed yesterday's deals at 0.8747.
The euro climbed against most of its major counterparts except against the pound amid the German retail sales report. Germany's Federal Statistical Office announced that the retail sales in real terms increased 0.5% month-on-month in April, compared with a 0.4% drop in the preceding month. The April retail sales came in line with economists' expectations.
But according to Simon Junker in Commerzbank Corporates & markets is of view that they expect further significant losses in retail sales, even if the German economy stabilises in the second quarter. He said that this is because the situation on the labour market will deteriorate well into next year and this will put pressure on wages. Consequently, there will be no growth impetus from private consumption.
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