Currency Exchange Update: Pound Sterling Enjoys Better Day as January Ends

The pound finished the month amidst quieter market conditions without any further losses as data showed that UK house prices rose by 0.5% to an average of £162,245 in January, versus the previous month, according to the latest data from the Nationwide.

Robert Gardner, Nationwide's Chief Economist, said “While activity in the housing market remains muted by historic standards, there have been tentative signs of a pickup in activity in recent months. The Funding for Lending Scheme has achieved some success in bringing down mortgage rates, with some signs of a pickup in lending activity. Hopefully, the momentum will continue to build in the months ahead, though much will depend on whether the wider economic environment improves. Progress is likely to be relatively slow on that front if recent trends are any guide.”

The decline in first time buyer numbers continues to be a source of concern for Nationwide. Their report shows that these have fallen from an average of 32,000 a month before the financial crisis to 20,000 a month today. Likewise, the ‘average’ first time buyer now puts down a deposit of 20% compared to 10% before the financial crisis. Even so, at present the typical first time buyer home costs 4.4 times average earnings, still well below the highs of 5.4 recorded in 2007.

Meanwhile, the GfK gauge of UK consumer sentiment rose to -26 points in January, versus a -29 reading in December according to research carried out by the consultancy on behalf of the European Commission.

Commenting, Nick Moon, Managing Director of Social Research at GfK said "This suggests it is too soon to say if more positive views on the general economy mark the start of sustained rise in the Index. Indeed, the continuing gloom from the high street and the talk of triple-dip recession makes that seem somewhat unlikely, but a rise in two months out of the last three is an encouraging sign.”

The pound managed to regain a small part of the big losses incurred throughout the opening month of the year in quieter trading yesterday.

Overnight data from China sent the market some ‘mixed’ signals on the state of China´s economy. China´s purchasing managers index (PMI) for the manufacturing sector dipped to 50.4 points in January from 50.6 in December. A similar survey, carried out by Markit on behalf of HSBC, but which canvasses a smaller simple of companies, rose sharply to 52.3 for January, from 51.5 in December and versus a preliminary reading of 51.9.

Of note, input prices rose sharply in both surveys, "reinforcing our view that inflation will continue to trend higher through 2013. We maintain our view that GDP growth will rise to 8.2% year-on-year in the first quarter, but we are cautious on the growth outlook for the second half” commented economists at Nomura.