Pound falls for a third day in a row

The pound fell against the euro for a third day in a row but hit a 5 year high against the US dollar following Wednesday’s latest policy announcement from the US Federal Reserve.

In the UK, the Council of Mortgage Lenders (CML) reported yesterday that UK mortgage lending stayed flat in May following the clampdown on borrowing that was introduced in April. The CML data showed that gross mortgage lending was largely unchanged in May at an estimated £16.5 billion, identical to April's gross lending total but 12% higher than the £14.8 billion registered in May 2013.

Bob Pannell, CML Chief Economist said "Market indicators point to a slowdown in activity levels, in part associated with new mortgage rules, but it is unclear how lasting this will be."

for his part, Howard Archer at IHS Global Insight said "At the moment, house prices still look more likely than not to see solid increases over the coming month, although there will probably be some easing back from recent very strong increases. The Bank of England will likely want to take further preventative measures – and sooner rather than later."

Also out yesterday, the Office for National Statistics reported that UK retail sales dropped in May with sales falling by 0.5% in May.

Howard Archer at IHS Global Insight said "The main restraint for consumers is that earnings growth remains muted and relapsed markedly in April following overall limited improvement in the first quarter".

Meanwhile the Confederation of Business Industry (CBI) in their latest industrial trends survey out yesterday suggested that a recovery in the UK manufacturing sector on the back of rising exports could be in jeopardy after the pound’s recent rise to a 5 year high against the US dollar. Whilst the latest data shows that order books are at their highest since December, the buoyant picture is somewhat undermined by fears over the impact of the strengthening pound.

Finally on the UK, senior Bank of England (BoE) policymaker Ian McCafferty again warned that an interest rates rise is on its way stating that the BoE must not ‘hold back too long’ as ‘it will be critically important that rises in bank rate are delivered, as far as we are able, at only a modest, gradual pace’.

In the US, the US Department of Labor reported that initial weekly US unemployment claims fell by 6,000 in the week ending 14 June to reach 312,000, just shy of analysts’ predictions. In addition, secondary unemployment claims, for those who are not filing for their first time and referencing the week finishing on 7 June dropped by 54,000 to 2.561 million. Following hot on the heels of Wednesday night’s latest policy announcement from the US Federal Reserve, the dollar continues under pressure and is now trading at its lowest level against the pound since September 2008.