Volumes flat with Thanksgiving. BoE surprises property market with a change in funding for lending

Tom Tong29/Nov/2013Currency Updates

GBP

Sterling opened London trading well supported from yesterday’s highs and a rally ensued following Carney’s speech and the release of a financial stability report. London closed with the pound riding a 14-month high against its most traded basket and a 14 month high against the dollar, also fortnightly highs against the euro.

The BoE surprised the market with an alteration of policy in an effort to stem fears of the recent catapult in house prices leading to a housing bubble. From January 2014 the BoE funding for lending scheme will no longer be slanted towards the housing sector and instead will aim to increase retail banks lending to small business. Presently the BoE has provided favourable terms for banks to lend to house buyers, the shift will now see fees charged to banks for lending to small business slashed to 0.25%. The Help to Buy scheme will remain, however it is expected that shortly the BoE will introduce guidelines to ensure that mortgage lending given is pegged to the salary of the buyers as right now this is a fairly shady area. Traders pounced on the surprise decision with mass shorting of UK house builders wiping £1bln off their value. Babbling amongst industry leaders is surprisingly sanguine with the general consensus bullish towards the UK housing market and a predicted inevitable correction in share price of property firms.

Continuing with the bricks and mortar theme today will see the release of yearly and monthly house prices, mortgage approvals and money supply. Doubtless the housing data will whip up a media frenzy with notable gains widely called.

EUR

Light trading on the euro yesterday. London opened with the euro scalping fair gains against the greenback however levels retraced over the afternoon. London closed with the euro up against the dollar however down against the pound following the second day of the sterling rally. Asian trading session unexciting with major euro pairs bouncing between resistance levels.

Yesterday brought a mix of data on the eurozone shedding greater light on the economic situation. Lending to the private sector is still dipping, money supply is also down. Despite dull data figures the measure of economic confidence was up. Weak eurozone inflation data today could fuel expectations of further stimulus measures from the ECB. Policy setters have been moved to react to a clear disparity in economic performance. Weak growth has coupled with high unemployment, the situation is making both the ECB and market jumpy. The short term view is not great. However, with glimmers of growth the long term view is slightly less bearish.

Big day for the euro, CPI and unemployment set for release 10.00 GMT. Market calling both fairly flat.

USD

As US markets were closed yesterday for Thanksgiving we see minimal movement from the USD. The greenback was mostly bouncing around resistance levels with the majority of traders unwilling to enter positions prior to Non-farm Payroll next Friday. Presently the market is calling a big number, earlier this week brought good employment data as the number of new claims for jobless benefits fell to 316,000 down from 326,000 in the previous seven days. The 4-week average of new claims is also improving alluding to a wider pick up in the jobs market.

No data out of the US today.

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Written by Tom Tong

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