Currency market updates - from Foreign Currency Direct (www.currencies.co.uk)

Friday October 12th 2007

By Tom Arnold - Senior Executive Dealer

Thursday’s Trading

Sterling slipped to its lowest level in nearly two weeks against a basket of major currencies on Thursday, after data showed UK house prices fell at their fastest pace in two years, in the three months to September, and the outlook for sales was its weakest in 4.5 years, as interest rate worries put people off investing in property.
"The combination of rising interest rates, the introduction of HIPs and volatility in the financial markets resulting in tightening of lending criteria, has certainly affected the confidence of buyers and sellers." said RICS spokesman Jeremy Leaf.

The data from the Royal Institute of Chartered Surveyors was the latest in a line of soft news from Britain's housing market, and this has rekindled talk of a UK interest rate cut.

Sterling had rallied earlier this week after expectations of a near-term UK interest rate cut were cooled, when the BoE Governor Mervyn King, said Britain's economy would need to slow over the coming year to keep inflation risks at bay.

It was not all bad news for the UK economy however, with the pound briefly picking up after data from the British Chamber of Commerce showed, in the third quarter, UK manufacturers enjoyed the strongest demand for their goods in nearly two decades, taking the percentage of firms working at full capacity to a 10 year high.

This data, while very positive, was not a strong enough indication of inflationary pressures to halt the slide in Sterling, brought about by the RICS survey though, and the Pound finished the day down 0.4% against the US Dollar, 0.9% against the Euro, 0.95% against the Cypriot Pound.

Around the World

Australia has seen its jobless rate fall to its lowest level in 33 years in September, official data shows, raising chances of an interest rate rise in the near future. Employers created 13,000 new jobs for the month, sending unemployment down to 4.2%. The Australian Dollar is already an attractive target for the “carry trade”(people investing in high interest yielding currencies) and future interest rate rises are likely to strengthen it further.

Thursday also saw a televised address from the governor of South Africa’s central bank, Tito Mboweni, announcing the banks monetary policy statement for October. They raised the key interest rate by 50 basis points to 10.5%. With inflation well above target at 6.8%, and declines not expected until the next quarter, and target not expected to be achieved until 2009, this rise is possibly a sign of things to come. The Rand gained 2.7% in one day against Sterling, a massive movement even for one of the most volatile currencies on the market.

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