The pound recovered against the US dollar yesterday, while circling in a high holding pattern against the euro, very close once again to its 2½ year high.
The aftershocks of the Trump victory continue to be felt, but interest rates have come back to dominate. Yesterday the Bank of England (BoE) cut interest rates by 25 basis points from 5% to 4.75%. The US Federal Reserve (the Fed) repeated the same cut yesterday evening.
However, these were largely expected and priced in. More surprising was China’s balance of trade being considerably higher than expected and Germany’s much lower. American stock markets continued to soar following the rate cut news, with the S&P 500 gaining 0.7% yesterday, taking total gains this week to 4.2%.
The difficult relationship between president-elect Trump and the Fed’s chairman Jerome Powell looks set to continue. Trump wants interest rates set lower to help business, but Powell said last night that he would not be resigning and could not be sacked by a president. Asked what the effect of Trump’s economic plans might be, Powell said: “We don’t guess, we don’t speculate and we don’t assume”.
There were sackings in Europe’s largest economy, however. Germany’s chancellor Olaf Scholz fired finance minister Christian Lindner, the leader of one of the three coalition parties, on Wednesday night. There is likely to be an election in Germany in the new year. Coming on top of the threat of US tariffs, this hit the euro, which has weakened by 1.5% against the pound over the last week and is at its weakest against USD since last June.
There’s been some interesting data in UK property. Construction PMI was downgraded from 57.2 last month to 54.3 this month – a significant drop in optimism. However, the Halifax House Price Index came out yesterday and showed British properties at their highest ever, averaging £293,999 and rising by 3.9% in the year to October. The Halifax’s Amanda Bryden said that the budget had probably put paid to sharp mortgage rate reductions for now: “While we expect house prices to keep growing, it will likely be at a modest pace for the rest of this year and into next.”
This is in contrast to Savills who predicted yesterday that average house prices will rise by 23.4% over the next five years.
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