Pound weakens over house prices comment

The pound weakened in relation to the Euro on Friday on comments from a Bank of England deputy governor who said that house prices in the UK will continue to decline.

His comments made it seem less likely that the Bank's Monetary Policy Committee will raise interest rates in the next few months and hurt consumer confidence in the UK . The U.S. Federal Reserve will be the focus of attention this week, though there's enough UK economic news due to keep sterling markets on their toes.

The dollar was hurt by decreased expectations that the Federal Reserve will hike US interest rates after an analyst note said that the two largest mortgage-finance companies in the United States, Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE), will likely see more losses as the housing market deteriorates further. On Wednesday, the Federal Reserve will be making a monetary policy announcement.  After cutting interest rates by 325bp since August, the Fed is expected to pause.  With the pause should come hawkish comments that pave the way for an interest rate hike before the end of the year.

The Euro fell after key surveys showed further falls in German business expectations and revealed an unexpected contraction in activity in both the euro zone manufacturing and services sectors.The focus next week for the Euro zone will be how inflation has impacted growth. The week starts off with the German IFO report, and the service and manufacturing PMI numbers.  Then on Friday, we are expecting the retail PMI numbers and current account. This past week, German investor confidence dropped to a 15 year low.