Sterling Goes Down Further

According to a recently released report, the home prices in United Kingdom kind of stagnated and hence, it affected the major currency Pound badly. The Sterling has actually got to a 5-week low against Euro and it is fueling a sentiment among investors that the economic recovery of the country is losing the momentum.

The Italian and Spanish bonds experienced rallies in this month, thereby dampening the demand of Sterling as the haven due to the debt crisis of Europe. The report on housing industry, released by Nationwide Building Society also stated that the prices of houses may even drop further in 2013, mainly because of the subdued wage growth.

As the statement released by Bank of England officials reported that overseas investors have increased their holdings of the United Kingdom Government bonds, the British gilts have shown gains.

Ian Stannard, the European Currency Head Strategist for Morgan Stanley, stated that the future for Sterling doesn’t look bright to him, in fact, it may experience further fall. Earlier, the currency was getting supported because of the safe-haven flows from Europe, but, as those flows are slowing down, Sterling is going to get exposed to its underlying fundamentals. Stannard added that those fundamentals are not looking very positive.

Sterling is priced as 80.96 per Euro currently after dropping by 0.1%. It however experienced a surge of 0.1% against USD and is currently at $1.6035. Stannard mentioned that according to his analysis, the Sterling may weaken further and be priced around 83 pence per Euro by March, 2013.

As far as housing industry reports are concerned, the average cost of a United Kingdom home in November was 163,853 pounds. If compared to the prices during the same time in 2011, it plummeted by 1.2%. Robert Gardner, the chief economist of Nationwide Building Society, stated that he expects the home prices to remain mostly flat in the next 12 months. At worst case scenario, it may drop down further, but, chances of a surge look slim currently. Incidentally, yesterday, Bank of England reported that the mortgage approvals increased even in October, marking it to be the 4th month of this occurrence. It also stated that the non-residents of England bought 4.31 billion pounds worth gilt more, if compared to what they sold in October. Incidentally, in September, they increased their holdings by 1.84 billion pounds.