EUR and USD come under pressure

Despite a lack of any real top tier data being released yesterday, Sterling gained ground as figures indicated that UK house prices have accelerated this month, which is marginally alleviating investor uncertainty regarding UK economic growth. Despite this rally, analysts are still cynical that Sterling can continue to strengthen, or even hold onto yesterday’s gains. The Rightmove House Price Index indicated an increase of 2.6% in October following last month’s growth of 0.9%. The house price increases may once again lead to speculation regarding a housing bubble in the UK which the Bank of England may feel pressurised into acting upon. Rising house prices can however also have a bearing on inflation. At the moment inflation is well below the BoE target of 2%, which is preventing a UK interest rate rise. House price growth is based on demand, which is also linked to spending in the economy, and this latest data is encouraging as the correlation could be shown in the next inflation figures release. For now, market participants are waiting with baited breath for the minutes from the latest BoE Monetary Policy Committee meeting, which will give insight into committee member sentiment – any variation from the 7-2 vote last month will have repercussions on Sterling.

The Euro witnessed a mixed day's trading, losing ground against most major currencies yesterday as concerns once again arise regarding the stalled economic recovery. The future for the eurozone is still unclear; indeed the powerhouse Germany is committing unnecessary expenditure to account for its fixation on balancing its budget, whilst at the same time Italy and France aren't going far enough to bring their budgets under control, and Greece just seemingly continues to make ill-advised decisions. These aspects are currently weighing heavily on the single currency due to the fact that if the eurozone members cannot strike the right balance this will have far reaching ripple effects throughout the region. Alongside the aforementioned internal threats to the eurozone economy, external threats also continue to diminish risk appetite, including a reduction in global demand, slowing in China, sanctions against Russia, worries about ISIS and even Ebola.

The US Dollar has come back under pressure as the market digests the fact that an interest rate rise is likely to be delayed, owing to current market conditions rather than a slowdown in the economic health of the world’s largest economy. Analysts are re-evaluating the schedule for an interest rate hike, as it becomes more apparent that the global economy is beginning to slow down. This coupled with the aforementioned uncertainty ranging from the war on terrorists to the outbreak of Ebola, means that fundamentally the Federal Reserve may not have any choice but to postpone hikes. Fundamental economic data released this week in the form of Core CPI and Unemployment Claims will give further insight into the macroeconomic health of the US economy.