Pound Mixed After August House Price Data Shows Surprise Fall

Softer-than-forecast house price data from Nationwide kept Sterling soft against all majors except for the Dollar which is under pressure amidst unease over the latest North Korean missile test.

The Pound weakened against many of its major counterparts during early trading in London, Tuesday after data from building society Nationwide showed a surprise fall in the value of UK home prices during August.

August’s Nationwide House Price index showed prices sliding by 0.1% during the period, reducing their annual gain to 2.1%, and taking the value of the average home in the UK down to £210,495.

Markets were forecasting monthly house price growth of 0.1% while the annualised figure was forecast at 2.5%.

“The slowdown in house price growth to the 2-3% range in recent months from the 4-5% prevailing in 2016 is consistent with signs of cooling in the housing market and the wider economy,” says Robert Gardner, chief economist at Nationwide.

The August reading was lower than had been forecast by economists, which had implied no change, with the average home price to remain at £211,671.

“The economy grew by c.0.3% per quarter in the first half of 2017, around half the pace recorded in 2016. The number of mortgages approved for house purchase moderated to a nine-month low of c.65,000 in June and surveyors have reported softening in the number of new buyer enquiries,” Gardner added.

The graphs tell an interesting story though. Prices are still robust but the house price to earnings ratio is climbing back to historic highs; this could well be the key limiting factor.

The pound to euro exchange rate dropped 20 points to 1.0775 in the first hour of trading while relative to the Japanese yen and Swiss franc, sterling gave up around 50 points to trade down at 140.81 and 1.2305 respectively.

This is while the pound to US dollar exchange rate received a 0.2% boost, to trade up to 1.2957, with the greenback weakening broadly in response to Hurricane Harvey having decimated swathes of America’s fourth largest state by economic output and following the latest missile test from North Korea.

Overnight reports that North Korea has test fired a missile that travelled through Japanese airspace and over the mainland now threatens to reignite tensions between the US and the isolated Asia Pacific nation.

This will surely provoke a response from US President Trump who previously suggested the US would react with “fire and fury” at any escalation of threat. This move has impacted financial markets, with risk appetite being hit. The main safe haven trades, such as gold, US Treasuries and the yen have all strengthened, whilst the US dollar and equities have been casualties,” says Richard Perry, a trader with Hantec Markets.

Tuesday’s house price data comes as the third round of Brexit talks continues in Brussels, with pundits viewing these as a likely source of negative news flow for the Pound.

“Much like a certain boxing match in Las Vegas last weekend, we suspect it could turn out to be a fairly one-sided affair...While GBP could remain on the back foot, we still think EUR/GBP at parity remains a longshot,” says Viraj Patel, an analyst at ING Group.

What will be key is the assessment offered by European chief negotiator Michel Barnier on the conclusion of talks this Thursday.

Should Barnier express frustration we would expect Sterling to suffer while suggestions of welcome progress would surely underly the narrative that a hard and disruptive Brexit will be avoided.