Weak Housing Prices pull Sterling downwards

Sterling continued weak against the dollar on Friday after the release of Halifax house price survey which showed the first annual fall in property prices in around a decade boosting expectations for interest rate cuts.

The Halifax house price survey showed prices in the three months to April fell 0.9 percent versus a year ago. Consensus forecast was for a 0.8 percent fall.

The recovery in the counterpart after the rate decision from FOMC also added to the pressure on the cable.

In the last meeting Fed cut its overnight lending rate by 25 basis points to 2 percent and signaled that its next move would depend on developments in financial markets and the economy. The Fed s signal boosted the optimism of the traders in the currency market. Since mid Septspanber the U.S. central bank has slashed the fed funds rate target by 3.25 percentage points to shore up the economy.

Different data from UK were not supportive for the view of a span economy. Market research firm GfK NOP's monthly consumer confidence barometer fell to 24 in April from 19 in March its lowest level since Novspanber 1992.

The unchanged expectation of a rate cut even after the release of BOE minutes weigh on the cable. The Bank of England minutes showed two votes against easing policy this month. In its first three way split in two years the nine span Monetary Policy Committee had six votes for this month's 25 basis point cut to 5 percent one vote for a bigger 50 basis point move and two votes for unchanged rates.

Weak UK house price data continues to put pressure on the cable. A UK house price measure fell to its lowest in 30 years which increased the worries about that sector and the economy. Weak CPI data also added to the pressure.

According to Royal Institution of Chartered Surveyors net balance of UK house prices fell to 78.5 in the three months to March its lowest since the survey began in January 1978.

Sterling had been under pressure against the dollar after the Bank of England cut rates by 25 basis points. The bank s decision affected the concerns on credit conditions in UK.

However BOE decided to limit cut in 25 basis points because of optimism about the economy after the latest batch of bank write downs.

Concerns about European exposure to the US sub prime mortgage crisis rspanained as Swiss banking giant UBS and the Deutsche Bank disclosed a combined $23 billion of write downs for the first quarter.

Bank of England Governor Mervyn King had said that the central bank was facing the challenge of balancing the possibility of weaker growth due to the credit crunch with higher inflation pressures has been weighing on cable .

Last day in spot trading sterling closed at 1.9710 (1.9755) against the dollar after trading in the range 1.9897 1.9703.

Medium term outlook

Trading below 2.0000 is the sign of weakness. Supports are 1.9800 1.9600 1.9385 resistances are 2.0275 2.0400.

Last day DGBP traded in the range 198.36 196.50 and closed at 196.68.Sterling daily chart (spot)

TECHNICAL OUTLOOK (Intra day)

DGBP (June) Bullish above $ 197.37 bearish below $ 196.82