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Tuesday 2 November 2010

Sterling Rise For Euro Property

Britain's economy grew by 0.8% in Q3, postponing or even cancelling the need for more QE. Euro buyers run out of enthusiasm.
Sterling went up by three cents over the seven days. It was almost a one-way street with two thirds of the gains coming at a rush on Tuesday.

The week began with investors in a mood almost of sympathy towards sterling. On Monday they allowed the British Bankers Association to announce the lowest number of approvals in 18 months and the slowest growth in ten years and for mortgage lending. The bears refused to bite. The following morning they even wanted to buy sterling as London opened. It appeared that they were second-guessing the figures for Britain's gross domestic product (GDP) in the third quarter of the year (Q3), speculating that GDP would have expanded more than the 0.4% predicted by analysts.

And they were correct to do so; GDP grew by a provisional 0.8% in Q3. The figure was at the very top end of expectations and even the most dyed-in-the-wool pessimists had to admit it was a good one. Sterling headed upwards against everything; it did it no harm that earlier in the day ratings agency Standard & Poor's had confirmed that Britain's AAA credit rating was no longer in doubt, it was "stable". Ratings don't come better than that.

For the rest of the week the GDP figure kept the bears at bay. It allowed sterling to avoid the potentially ill effects of a 0.7% fall in Nationwide's house price index, a fall in the CBI's retail sales index and a lacklustre Bank of England total for mortgage approvals in September. A small -0.1% fall in Hometrack's house price index late on Sunday night did no damage either, even though a spokesman said that " further price falls are inevitable".

The euro should have got off to a good start last Monday when Standard & Poor's said that "Germany is recovering brilliantly". S&P's take on the Euroland outlook was that Germany's situation will require the European Central Bank to raise euro interest rates even as Ireland and southern Europe remain stuck in recession. But just as investors were not inclined to punish the pound, nor were they ready to praise the euro. With the US dollar on the ropes and nowhere else to go they could not easily abandon the euro even if they wanted to. And they didn't particularly want to, it was more a matter of running out of enthusiasm for buying it.

There was no particularly bad economic news from Euroland and Spain but there was not much on the positive side either. Industrial orders were up by a a healthy 5.3% in August but consumer confidence in Germany was static. German inflation and unemployment were both steady at 1.3% and 7.5% respectively. Brussels' measures of economic confidence was higher, industrial confidence was lower and consumer confidence was steady. Euroland inflation inched up from 1.8% to 1.9% and German retail sales fell by a disappointing -2.3%.

For the pound the biggest deal this week will be Thursday's Monetary Policy Committee. The MPC is unlikely to make any change to interest rates but it the subject of quantitative easing will inevitably crop up. After last week's stronger than expected GDP figure most analysts expect the MPC to hold its fire on the matter of renewed quantitative easing. However, a "no" vote on Thursday does not guarantee it will not be proposed at future meetings. QE cannot be dismissed as yet. Buyers of the euro should continue to hedge half their requirement.

For more information on Exchange Rates or Euro Properties for sale visit or contact, 0034-928535044

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