Monday during early deals, the pound tumbled to new multi-day lows against its US and Japanese counterparts after a report by the property industry group Hometrack showed that the average price for a home in England and Wales plummeted by a record 10.3 percent on year in March.
Rising unemployment and the deepest economic contraction since 1980 are sapping demand for housing after prices tripled in the decade ending in 2007. March's annual fall was the biggest yet in Hometrack's monthly survey of estate agents and surveyors, which started in 2000 and has persistently reported lower price falls than official government data.
The average achievable selling price for March was 156,100 pounds, 0.6 percent lower than in February and the smallest monthly fall since May last year.
With the expectation of continued increases in unemployment and weak economic growth together with restricted availability of mortgages, it seems doubtful whether the increase in activity and sales will continue to gather momentum in the coming months, said Richard Donnell, Hometrack's director of research.
Prices look set to remain under downward pressure over the rest of 2009, he added. This situation could well reverse in the near term as much still depends upon improved consumer confidence, a gradual recovery in mortgage lending and greater stability in the economic outlook, Donnell said.
Adding to pound's slide, another report showed that Britain's financial services industry is cutting jobs at the fastest rate for 16 years as it cuts costs to soften the blow of a steep fall in profitability. The CBI/PWC financial services survey, covering the three months to early March, found 9 percent of companies reporting a rise in business volumes and 56 percent saying volumes fell, giving a net 47 percent of companies reporting a fall. That marked a sixth successive quarter of declines.
During early deals on Monday, the pound slipped to 1.4174 against the dollar. This set the lowest point for the UK currency since March 19. If the pound falls further, it may likely target the 1.40 level. The pound-dollar pair was worth 1.4323 at last week's close.
The dollar rose against other major currencies today as weak stock markets undermined recent investor confidence and favored the safe-haven greenback.
After a bout of improving economic and financial sentiment, which strengthened the higher yielding currencies last week, traders are cautious ahead of the European Central Bank's rate decision and a meeting of G20 nations this week.
The ECB holds a rate review on Thursday. Amid expectations that it will cut its main policy rate by half a percentage point to a new record low of 1 percent, the market is keen to see how far it might follow other central banks such as the Fed in taking unconventional steps to shore up the economy.
Leaders of the Group of 20 developed and developing nations meet on April 2 and the market will be watching to see what measures they will discuss to fight the global economic crisis.
The pound-dollar pair tumbled to a 1-1/2 -month low of 1.3659 on March 11. Although the pound gained 8% thereafter, it weakened again after reaching a 6-week high of 1.4781 on March 24 amid the UK inflation report, which showed that the nation's annual inflation unexpectedly accelerated in February.
Annual inflation increased to 3.2% in February from 3% in the prior month and against economists' expectations of a 2.6% decline. Month-on-month, consumer prices were up 0.9%, faster than a 0.3% rise expected by economists.
According to David Kern, Chief Economist at the British Chambers of Commerce, unexpected rise in UK inflation postpones but does not remove the risk of deflation this year. Though the annual increase was partly due to the weakness in sterling, this might also indicate that productive potential in the economy is falling and there remains less spare capacity to exert downward pressure on prices.
As the inflation remained more than one percentage point above the 2% target, Bank of England Governor, Mervyn King was forced to write another open letter to the Chancellor of the Exchequer, Alistair Darling stating reasons for the above target inflation.
King expects a sharp decline in CPI inflation since its peak in September to resume in the coming months. He added, It is likely that over the next year CPI inflation will move below target, although the profile of inflation could be volatile, reflecting the reversal of the temporary change in VAT on CPI inflation.
The pound has slipped 4% against the dollar since reaching a 6-week high last Tuesday.
In early deals on Monday, the pound dropped to its lowest level in almost 10-days against the yen, falling to 137.39. The next downside target level for the pound is seen at 135.6. At last week's close, the pound-yen pair was quoted at 140.19.
The yen gained despite a disappointing economic report from Japan. Industrial output in Japan plummeted by 9.4% in February compared to the previous month, the Ministry of Economy, Trade and Industry said. That was slightly worse than forecasts that called for a decline of 9.0% following the 10.2% decline in January. On an annual basis, industrial output dropped 38.4% compared to forecasts of a 38.1% decline after the 31.0% retreat in the previous month.
As recession fears increased in Japan, analysts expect the Japanese government may map out its third fiscal stimulus package ahead of the G20 summit this week to prop up the economy. Japan has already announced two stimulus packages with combined spending of 12 trillion yen to ease the pain from the global credit crisis.
The U.K. currency surged to near a 4-month high of 145.12 against the yen on March 24 on strong equity markets. However, the pound pared its gains later last week on disappointing U.K. retail sales report and the currency has lost 5% thus far.
U.K. retail sales grew at the slowest pace since 1995 in February, as consumers reduced their spending amid fears of deepening recession and rising unemployment. In a report, the Office for National Statistics said on March 26 that the retail sales volume recorded an annual increase of 0.4% in February, which was the weakest growth since September 1995. Annual growth stood much below 2.5% rise expected by economists.
The pound, which closed last week's trading at 1.6397 against the Swiss franc and 0.9285 against the euro declined to 1.6258 and 0.9326, respectively during early deals on Monday. If the pound slips further, it may find near term support at 1.623 against the franc and 0.938 against the euro.
The British final M4 money supply report for February and the Euro-zone business and consumer confidence reports for March are expected in the upcoming European session.
Across the Atlantic, there are no significant economic reports due to be released.
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