Housing data hit sterling

Sterling came under pressure on Thursday after weak UK housing data raised expectations for a near-term cut in interest rates.

Figures from the Nationwide building society showed UK house prices fell by 0.8 per cent in November, their largest decline since June 1995.

Later in the session, data showed UK mortgage approvals slumped by more than expected in October, dropping to their lowest level since 2005.

Sterling fell 0.8 per cent to $2.0634 against the dollar, eased 0.3 per cent to £0.7147 against the euro and lost 0.8 per cent to Y227.18 against the yen.

Daragh Maher, senior FX strategist, said taken together the data added to the growing mountain of evidence showing a UK housing slowdown.

“The sterling sell-off seen this morning likely has further to run,” he said.

Meanwhile, the dollar rose 0.5 per cent to $1.4754 against the euro, gained 0.4 per cent to SFr1.1169 against the Swiss franc and climbed 0.8 per cent to $0.8850 against the Australian dollar.

David Woo at Barclays Capital said the dollar remained relatively well-supported despite some negative US economic data and dovish comments from Donald Kohn, vice chairman of the Federal Reserve.

“This is consistent with our view that a fairly pessimistic outlook for the US economy and the likelihood of significant Fed easing is priced into the dollar,” he said.

“As such, we continue to see relatively limited downside for the dollar against the euro in the short term.”

Meanwhile, the yen advanced after coming under pressure in the previous session as a strong performance from global equities boosted demand for carry trades, in which the low-yielding Japanese unit is sold to finance the purchase of riskier, higher-yielding assets elsewhere.

Analysts said a combination of Abu Dhabi’s move to take a stake in Citigroup, the largest bank in the US, and Mr Kohn’s dovish tone had boosted equity markets, helping US stocks put in their best tw0day performance for five years.

However, Hans Redeker at BNP Paribas said the recovery in equity markets, as well as the dip in the yen looked temporary, since the fundamental outlook for the world economy remained bearish.

“The equity market has not yet dealt with the risk of recession,” he said. “The yen’s downside should be limited.”

The yen rose 0.1 per cent to Y110.00 against the dollar, climbed 0.6 per cent to Y162.37 against the euro and gained 0.6 per cent to Y97.39 against the Australian dollar.