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Pound Plunges to Monthly Low Against Euro

Sterling has dropped below support against most of the majors this morning as disappointing UK data from last week continues to darken the pounds prospects going forward. The fragility of the recovery is forefront. Last weeks data from the North America has helped strengthen risk appetite which has clearly favored the Euro.

Sterling fell to 1.1940 GBP/EUR, its lowest since August 9 after house prices were reported to have fallen 0.9pc in August, following a 0.5pc slide in July. It is the first time house prices have dropped for two consecutive months since February 2009. The data will add to rising expectations that the housing market is heading for a double dip. Even the more optimistic economists now expect house prices to fall in real terms, once inflation is included, over the next few years.

Non-farm payrolls figures last Friday showed that unemployment rose just 54,000 last month compared with expectations that over 100,000 positions had disappeared. The jobless rate inched up to 9.6% from 9.5%.

Although it was still the third consecutive month of losses, July’s ugly 131,000 decline was revised to 54,000 and June’s 221,000 slump was trimmed to 175,000.

This figure has provided more ammunition for the bulls and the global stock markets have responded quickly. This return of risk appetite might help the pound to gain against the Dollar but it’s unlikely to help against any other currency pairs.

The pound has recently dropped to a 2 year low against the Swiss Franc, it’s also dropping close to a 3 month low against the Australian Dollar. These two currency pairings alone help to illuminate the precarious position that sterling finds itself in at the moment.

Risk aversion in the market tends to favor the Dollar, Yen and Swissy so in this scenario the pound loses. As risk appetite returns to the market the currency transfers favor the Australian Dollar, Euro and commodity currencies like the Canadian Dollar, the pound loses here too. It is actually quite hard to find a scenario where the pound might have a chance of gaining on an index basis.

Britain’s leading shares rose this morning, led by banks and commodity stocks as risk appetite remained after a better-than-expected U.S. jobs report in the previous session but even this hasn’t helped the currency.

Another round of Pound bashing has started to begin. This might set the tone for the medium term as long as reliance on housing data holds the key to sterling’s fortunes.

Looking forward to the rest of the week we will see interest rate announcements from Japan, Australia, Canada, England and Europe. No change is expected on any of these announcements so traders will be paying attention to the rhetoric from the banks spokesmen more than anything.