Pound declines on weak housing data

US Dollar:

A serious lack of macroeconomic data across the board led to a reasonably quiet day on the FX mar¬kets yesterday. Most of the Major pairs have been consolidating in ranges after the large trend breaking moves at the end of last month. EUR/USD continues to trade a relatively tight range of the 1.37—1.35 level excluding the odd temporary spike/dip and GBP/USD has been bound between 1.50—1.52 for the last week despite the release of what are traditionally market moving data i.e Non Farm Payroll. An interesting development of the last few days though has been the decoupling of the USD/risk aversion relationship. Over the last 18 months the Dollar has been strongly correlated with Global stock markets, large gains in equities meaning dollar weakness and losses in stocks meaning a flight to safety and USD strength. Since Early Feb the FTSE 100 has gained almost 8% and the S+P 500 has gained 10%. Current wisdom would therefore predict the USD to have weak¬ened by a similar amount but we have seen Cable drop by 7% and EURUSD down 3%. Could this be the return of FX markets being driven by more traditional factors such as interest rates, time will tell.
DATA— API Oil Inventories (MAR), FED Member Evans speaking, ABC Consumer Conf MAR

Pound:

The British Pound declined against the spectrum of major currencies in overnight trade after a disap-pointing set of house price as well as rumours that Moody’s may downgrade the bonds of several UK banks. A survey by the Royal Institute of chartered surveyors (RICS) showed only 17 percent of respondents reported a small rise in hose prices compared with analysts expectations of 30%. Upon the news Sterling fell from its weekly high of 1.5190 against the Dollar and 1.1130 against the Euro and spent the majority of the day around the mid 1.51’s and 1.1070 range. Flows later in the day caused the pound to drift lower and once stops were triggered around the 1.51 level, traders quickly targeted mid 1.49’s, where we are this morning. Other news weighing on the pound is continued speculation of a hung parliament and the comments by ratings agency Moody's who said the expected the wind down of the UK banking bailout programs could trigger ratings down¬grades for some UK banks. This would have the effect of making them higher credit risk and therefore increase the cost of funding their day to day borrowing operations, ultimately forcing up the lending rates to the public.
Data—UK Total Trade Balance Non EU (JAN), UK Total Trade balance (JAN)

Euro:

EUR trade has been very subdued against the majors over the last week and yesterday was no excep-tion. It held tight ranges against the Pound, Dollar and the Yen as markets look news be it positive or negative. Helping support it yesterday was French president Nicholas Sarkozy, who reiterated that European leaders stood ready to assist Greece. Also adding support was ECB president Trichet who said he believed ‘growth was advancing along a very positive path’ following high level talks in Switzerland. Although this sounds very good and positive, we can not ignore the huge economic problems bubbling in some EuroZone countries and we ex¬pect these to move to the forefront before long, bringing a crushing blow to the Euro.
DATA—FRA Trade Balance (JAN)

General:

• A high court case by HMRC against a UK Non Dom may put pay to mass city exodus.

• Oil and gasoline prices creep up, bringing with them the spectre of inflation.

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GBP/USD	1.4960
GBP/EUR	1.1012
EUR/USD	1.3579
GBP/JPY	134.36
GBP/AUD	1.6477
GBP/NZD	2.1433
GBP/ZAR	11.0906
GBP/CHF	1.6108
GBP/CAD	1.5400
GBP/SGD	2.0948
GBP/THB	48.67
GBP/HKD	11.61red-down; blue-up (snap shot