Sterling gains as good housing data helps investor confidence

Sterling rose against the dollar and the euro on Tuesday, helped by further signs of stabilization in the UK housing market which fanned renewed optimism that the economy may be over the worst. House prices in England and Wales fell at their slowest annual pace since November 2007, a survey by the Royal Institution of Chartered Surveyors showed, echoing other recent indicators suggesting house prices may be nearing a bottom. The news bolstered sterling, which also benefitted from relief about signs that the UK political situation has calmed for now, with Labour Party parliamentarians on Monday offering their support to Prime Minister Gordon Brown. Investors brushed off a survey by the British Retail Consortium showing UK like-for-like retail sales fell 0.8 percent in May compared with a year ago, particularly as this followed a 4.6 percent jump in April. The GBP/USD is currently trading at $1.6426 as of 9:07am, London Time.

Canada’s currency appreciated from near the lowest in two weeks as crude oil rose above $70 a barrel and investors bet the nation’s economy will benefit from a recovery in the neighboring U.S., its biggest trading partner. The loonie rose 10 percent this year on speculation a recovery in the U.S. economy, the world’s largest, will benefit Canada, which ships more than three-quarters of its exports to the U.S. The Labor Department said June 5 in Washington that U.S. job cuts slowed to 345,000 in May, the lowest level in eight months. Nobel Prize-winning economist Paul Krugman, a professor at Princeton University, said in a lecture yesterday at the London School of Economics that the U.S. economy will probably emerge from recession by September. The USD/CAD is currently trading at 1.0974 as of 9:09am, London Time.

The dollar and the yen weakened against higher-yielding currencies on speculation the global recession is easing, spurring demand for riskier assets. “The run-up of stocks improves risk appetite, attracting more capital into higher-yielding currencies,” said Tomohiro Nishida, a dealer in Tokyo at Chuo Mitsui Trust & Banking Co. “Selling of the greenback will continue and the yen may fall to 80 per Australian dollar in the continuation of the current trend.” “When optimism about the global economy is out there, people feel less need to hold the dollars which they have accumulated for a rainy day,” said Akio Yoshino, chief economist in Tokyo at Societe Generale Asset Management (Japan) Co., unit of France’s third-largest bank. “The dollar is likely to remain under pressure.” The USD/JPY is currently trading at 97.60 as of 9:12am, London Time.

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