In early deals on Thursday, the pound made strong gains against its major counterparts as the U.K. house prices posted a surprise increase in March for the first time since October 2007. The pound soared to a new multi-week high against the euro, 16-day high against the franc, 8-day high against the yen and a 1-week high against the dollar.
A monthly report from the Nationwide Building Society showed that U.K. house prices rose 0.9% on a monthly basis in March, reversing the 1.9% fall in February. The data surprised economists who had forecast a 1.5% decrease for March.
The annual rate of decline eased to 15.7 percent last month compared with a 17.6 percent fall in February. The Nationwide also reported its quarterly house price index for the first three months of 2009, showing that prices fell 4.2% between January and March, compared with the fourth quarter of 2008. The annual measure declined 16.7% in the first quarter of 2009, compared with same period a year earlier.
Spring brought a surprise bounce to house prices in March, said Fionnuala Earley, Nationwide's chief economist. While the rise in prices in March is welcome, it is far too soon to see this as evidence that the trough of the market has been reached, she said.
Earley agrees that house prices are unlikely to see sustained increase until the BOE and U.K. government's measures feed through the U.K. mortgage system and the housing market.
The Bank of England has already taken strong measures to ease the tensions in economic and financial markets by cutting rates and commencing quantitative easing, Earley said. However it will take time for these to work through into the housing market before we can expect a sustained recovery in house prices.
The BoE policy maker Spencer Dale said last week that there are signs the U.K. housing market has stabilized, though it still looks in a bad state.
Today's report came after the release of a report by the Bank of England, which showed an increase in the number of mortgage approvals. The BOE said on Monday that the number of approvals totaled 38,000 in February, the highest level since May 2008, while the Royal Institution of Chartered Surveyors has consistently been reporting a pick up in the number of buyer inquiries in recent months.
Despite this positive news, economists believe that house prices will continue to fall this year as still tight credit conditions and higher loan-to-value ratios keep would-be house buyers in a difficult position.
The U.K. economy shrank 1.6 percent in the fourth quarter, the most since 1980, and the Organization for Economic Cooperation and Development forecasts British gross domestic product will fall 3.7 percent this year.
The pound, which closed yesterday's trading at 1.4480 against the dollar strengthened to a 1-week high of 1.4599 during early deals on Thursday. The next upside target level for the pound-dollar pair is seen at 1.478.
The pound-dollar pair tumbled to a 12-day low of 1.4114 earlier this week 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 year-over-year in March. March's annual fall was the biggest yet in Hometrack's monthly survey of estate agents and surveyors.
However, the recovery in stock markets helped the pound to bounce back and it has gained 3% thus far against the dollar.
In early trading on Thursday, the pound climbed to an 8-day high of 144.77 against the yen. If the pound-yen pair advances further, it may likely target the 145.1 level. The pair was worth 142.65 at yesterday's close.
The yen and the dollar fell today against higher-yielding currencies as stock markets rose on hopes a deep recession is moderating.
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 thereafter on disappointing U.K. inflation and retail sales reports, and the pair touched an 11-day low of 135.78 on March 30.
Since then, the pound-yen pair has been in an upward channel as dismal economic reports from Japan this week led to the weakening of the yen.
Japan's February industrial output plunged for the fifth straight month and the unemployment rate jumped to a 3-year high. Meanwhile, the Bank of Japan's Tankan survey report released yesterday showed that sentiment among Japan's large manufacturers dropped at a record rate of -58 in the first quarter of 2009, signaling the economic slowdown in the world's second largest economy will deepen.
The U.K. currency has appreciated 6% against the yen since reaching an 11-day low earlier this week.
During early deals on Thursday, the pound jumped to its highest level in almost 16-days against the Swiss franc, hitting 1.6700. This may be compared to yesterday's closing value of 1.6603. On the upside, 1.684 is seen as the next target level for the UK currency.
The pound slipped to a 1-1/2 -month low of 1.5855 against the franc on March 10. An unexpected intervention by the Swiss National Bank along with an interest rate cut on March 12 helped the pound gain 6% and the pair reached a 19-day high of 1.6841 on March 16.
Although the U.K. currency eased thereafter, it rebounded after hitting a 6-day low of 1.6098 on March 18. Since then, the pound-franc pair has advanced more than 3%.
The pound soared to 0.9109 against the euro in early trading on Thursday. This set the highest point for the pound since March 09. If the U.K. currency strengthens further, it may likely target the 0.907 level. At yesterday's close, the euro-pound pair was quoted at 0.9149.
The pound fell to a 7-week low of 0.9499 against the euro on March 18 after a government report showed that the number of people claiming jobless benefits in Britain rose at a record pace in February amid rising fears of a deep, prolonged recession.
Thousands of job cuts at companies from Ford Motor Co. and GKN Plc to Vodafone Group Plc have taken unemployment to the highest level since the ruling Labour Party took office 12 years ago. The internationally comparable ILO measure of unemployment rose by 165,000 in the three months to January to 2.029 million - the highest level since 1997.
Weak economic reports from the Euro-zone dragged down the euro from a 7-week. Unemployment in the euro zone jumped more than expected in February to 8.5 percent, data showed yesterday. Euro-zone economic sentiment indicator hit a new all-time low this month showing that the euro-zone economy will continue to decline in the first quarter of this year.
Financial markets now focus on the European Central Bank, which is scheduled to announce its interest rate decision at 7:45 am ET. The ECB is widely expected to trim rates by 50bps to a record low of 1%.
Amid expectations that the ECB will slash rates, the market is focusing on whether the central bank will open the door for quantitative easing as its counterparts in the United States, Britain and Japan have already done.
As traditional measures reach their limit, ECB policy makers have indicated they may offer banks longer-term loans to ease credit strains. Now the debate is shifting to asset purchases. While Vice President Lucas Papademos says the ECB could buy corporate debt, council members Juergen Stark and Axel Weber have signaled they are opposed to such a move, suggesting the 22- member Governing Council is split on the scope of new measures.
Leaders of the G20 nations meet today amid signs that the world economy is stabilizing after months of freefall.
U.S. President Barack Obama, U.K. Prime Minister Gordon Brown and their G-20 counterparts, who are responsible for 85 percent of the world economy, are gathering to push along an agenda aimed at ending the slump and avoiding a repeat of the financial crisis.
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