U.K. Home Prices Tumble Lower, Pound-Dollar (GBP/USD) Sinks Below 1.4555

U.K. November Halifax house prices fell more sharply than expected, down 2.6% m/m and 14.9% 3m y/y, far worse than the Reuters medians for -1.0% m/m and -14.2% 3m y/y and versus -2.2% and -13.7% respectively in October. Data highlight the dire state of the U.K. housing market. The intensification of the credit squeeze is impacting loan availability and drive house prices lower still, hence likely to prolong a Britain's recession. A rapid and sharp reduction of BoE rates should help to cushion the house price fall, but central bank rate cuts are not feeding through to mortgage holders as efficiently as previous. Also, with the outlook for sharply deteriorating conditions for the economy next year, with rising unemployment and falling house prices, potential buyers are likely to stay away from the housing market.

Meanwhile, the pound-dollar (GBP/USD) recorded fresh trend lows ahead of the BoE rate announcement, with Cable moving under 1.4555 and EUR-GBP clearing its previous record high of 0.8662. Speculative accounts were positioning for a move in to fresh territory since the beginning of the week, with the market poised for more aggressive BoE rate cuts. The wide consensus is for a 1% move, but the surprise 175 bp cut from the Riksbank has seen the market harden its BoE rate outlook and 150bp is already being mooted. Cable dived from 1.4650 to 1.4539 and EUR-GBP spiked up from 0.8625 to 0.8674. Flows today have included good selling interest of GBP in clips of GBP 100 million, with talk that an Asian reserve manager was behind the move. Bids are noted in Cable between 1.4500 and 1.4525.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.
Learn forex trading with a free practice account and trading charts from FXCM.