The pound opened this short trading week trading at a 4 week high against the euro and a 4 year high against the US dollar.
Confidence about the UK economic recovery, concerns about policy initiatives from the European Central Bank (ECB) and little demand for the ‘safe-haven’ demand of the dollar all contributed.
In the UK, the Council of Mortgage Lenders (CML) reported that gross mortgage lending in the UK grew by 4% in the year to March 2014 to reach £15.4 billion, up 33% on the period but it is worth noting that over the first three months of 2014, gross mortgage lending was down by 10%.
Dr. Howard Archer, Chief European+UK economist at IHS Global Insight commented that ““Nevertheless, the risk of an overall housing market bubble developing is very real as the strength in house prices is becoming more widespread while house market activity clearly retains appreciable underlying momentum.”
Meanwhile, retail data company Springboard reported that retail footfall was below 2013 figures across all destinations with average footfall on Good Friday down 7.6% and 8.7% down on Easter Saturday.
Diane Wehrle, Marketing and Insights Director at Springboard said “People are clearly still very nervous about spending and these figures reveal the fragility of the recovery. These figures are surprising, but people may have chosen to spend their Easter doing activities other than shopping. However, while retail park footfall is down, it is only a slight dip on last year and is the best performing destination, showing consumers are still looking for those DIY products."
The US dollar was hit by further poor data out of the US economy, this time from the National Association of Realtors (NAR) who reported that existing home sales in the US declined by 0.4% between February and March to an annualised pace of 4.59 million units.
The NAR commented that a combination of rising prices and severe winter weather were the main causes behind the slowdown. Monthly sales were 7.1% lower than at the same time in 2013.
Overnight, the latest manufacturing data from China shows that the sector contracted for the fourth month in a row in April, in line with analysts’ expectations.
Hongbin Qu, the Chief Economist of China and Co-Head of Asian Economic Research at HSBC said “Domestic demand showed mild improvement and deflationary pressured eased, but downside risks to growth are still evident as both new export orders and employment contracted.”
He added that more measures from the People’s Bank of China (PBoC) “may be unveiled in the coming months” and that the central bank will keep “sufficient liquidity”.
In addition, the latest inflation data from Australia showed that core inflation slowed in the last quarter. Both the Australian inflation data and the Chinese manufacturing data hit demand for the Australian dollar hard and the Aussie experienced a sharp sell-off.
Analysts are suggesting that the latest inflation data may damp speculation that a combination of surging house prices, a looming building boom and falling unemployment could push the Reserve Bank of Australia (RBA) Governor Glenn Stevens to raise interest rates from their current record low of 2.5%.
Today sees the publication of the minutes of the last Bank of England (BoE) Monetary Policy Committee (MPC) which should help to fuel further interest rate speculation about the UK.