The British pound strengthened against the US dollar due entirely to dollar weakness. Although the problems with Fannie Mae and Freddie Mac affect the US the most, the UK will not escape unscarred.
Bond yields have started to trickle higher while the FTSE has plunged alongside the Dow. In some ways, the UK economy is in as much trouble as the US. According to the latest data from mortgage lender Halifax, house prices dropped for the fourth month in a row to the lowest level on record. More housing market data will be released next week and we do not expect the current trend to change. The UK will be reporting consumer and producer price growth along with their employment numbers for the month of June. Inflationary pressures are expected to grow, but the outlook for the unemployment numbers are mixed. Even though the labor conditions in the service sector improved last month, conditions in the manufacturing sector deteriorated.