British Pound Falls to a Record Low
The British pound dropped to a record low against the Euro as problems continue to plague the UK mortgage sector. Last month, I indicated that the British pound could fall below 2.0 if disaster hits UK mortgage lenders.
Since then, the pound has traded lower and even though there has been no blowup, nearly every major UK mortgage lender has either increased their interest rates on mortgages or withdrawn from the mortgage market completely. Despite the Bank of England’s 25bp rate cut yesterday, UK mortgage lenders have not relaxed. In fact, Abbey National, the last remaining lender to offer 100 percent mortgages has pulled their products off the market. The Bank of Ireland has also completely withdrawn their mortgage products for eight days while they reassess the value of their home loans. Existing lenders are expected to continue to hike borrowing costs, making it even more difficult for the UK housing market to recover. Next to the US dollar, the British pound is the currency that we are most bearish. However, next week could bring some respite with inflation and employment reports due for release. Even though the economy is deteriorating, the employment components of the PMI reports suggest that the labor market could actually rebound.