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

Wednesday 29th August 2007

By James Alexander - Senior Executive Dealer

Across the pond...

As we enter another day, it seems that once again, figures released Stateside will be the ones that will prove to be the most eagerly anticipated. Energy stocks follow - a now closely monitored - existing home sales.

The figures record sales of previously owned homes in the United States . This report commonly provides a fairly accurate assessment of housing market conditions, and because of the sensitivity of the housing market to business cycle twists, it can be an important indicator of overall conditions at times (such as now) when housing is particularly important to the economy.

Fresh turbulence hit financial markets on Tuesday as warning signs mounted for the US housing market and fears about the fallout from the crisis in credit markets drove volatility.

Sentiment darkened on the news that Federal Reserve policymakers had acknowledged that deteriorating financial conditions “might require a policy response” even before it moved to staunch a liquidity crisis by lowering the rate at which it lends to banks.

Closer to home...

Confidence among business in the state of the UK economy has been hit by fears that the US house price slump will have global ramifications, a report says. BDO Stoy Hayward's latest monthly index, which measures expectations for the next six months, fell to 101.2 in August from 101.9 in July.

This marked the lowest point since November 2005. The figures came as research firm SPSL said fewer people went shopping over the bank holiday weekend than in 2006.

Although all eyes are on our US counterparts, there is what looks to be the beginning of a somewhat bleak picture here too. Northern Rock, one of the UK's largest lenders, is to lift the rates on its range of fixed-term mortgages for borrowers with patchy credit histories.

From 29 August, sub-prime home loans at the lender will cost up to 1.25% more. Loans that track the Bank of England's base rate will no longer be available. The move comes as home repossessions in the UK surge, reflecting the effect of sharp interest rate rises. The bank said it was not at risk from sub-prime lending, as it passes those loans to an arm of Lehman Brothers.

With no major UK release, Sterling seemed to lose ground across the board versus a basket of major currencies yesterday, perhaps this simply illustrates an overall loss in confidence for the coming months.

What to do....

If Sterling continues to lose ground (we lost 1/4% against the Euro at close yesterday) those who are anticipating making a purchase abroad may wish to consider the options available to them to ensure that they are not buying at the wrong time. Anticipating a market slump can save you significant amounts in the long run. On a property costing €200,000 had you purchased your currency at the start of this month it would have been nearly £1500 cheaper!

Speak to your account manager and discuss how you could protect yourself against further potential losses.