The British pound rebounded strongly today thanks to better than expected economic data and broad dollar weakness.
Both housing equity withdrawals in the third quarter and BBA loans for house purchases in the month of November increased from the prior period which suggests that the UK housing market may be finding some support. However we are skeptical about whether that is true since the UK economy is still very vulnerable at the moment. Nationwide house prices are due for release tomorrow and that should provide a more current reflection of how the housing market is doing. Next to the US, the UK is still the country that has the greatest chance of lowering interest rates in the first quarter. For that reason, we believe that a further recovery in the British pound may be limited.