Traders Look To Thin Week, Durable Goods And Housing (page 2 of 2)

British Pound

The British pound posted the biggest advance against the benchmark dollar on the day despite data that would suggest otherwise. Issuing the first housing read for the month of August, the Rightmove House Price index reported the average list price for the four weeks ending August 11th dropped 1.6 percent to £214,040.

Not only was this the first decline since December, but it was also the biggest one-month drop since November of 2004. A spokesperson for Rightmove, the largest real estate website in the UK, suggested housing prices had already peaked for the year - referring to the record high £217,580 realized last month. These predictions seem well founded give the Bank of England's decision to raise its overnight lending rate for the first time in two years on August 3rd to 4.75 percent.

Any doubt that the housing market responds noticeably to shifts in lending rates is put to rest when reviewing the statistics following the central bank's decision to cut the overnight cash rate by a quarter point last year. Since that reduction, the average price of homes rose eight out of the twelve months that followed.

Going forward, Britons will have to contend with speculation buzzing in the markets that the central bank will once again move positively on rates in order to contain inflation. On August 9th, BoE Governor Mervyn King indicated that lending rates may require further tightening as inflation accelerates as much as a whole percentage point above their target in the next two quarter.

Japanese Yen

Contradicting Friday's Nationwide and Tokyo Department store sales positive moves, July same-store convenience sales dropped 5.2 percent. The decline was the largest in three years and put a quick end to the short-lived growth seen just the month before. Domestic demand has yet to fully take shape in Japan even as wages jumped 1.0 percent and employment prospects rose to a 14-year high in June.

Over the same period of time, consumer confidence remained net pessimistic while household sales fell for the sixth consecutive month by 2.2 percent. Consumer spending will become increasingly important in the coming months as signs of global growth continue to print numbers indicative of decreased demand for Japanese goods.

The contributions to economic expansion will be crucial for the Bank of Japan's fledgling cycle of higher interest rates. On the topic of lending rates, Japanese Foreign Minister Taro Aso announced his candidacy in the upcoming September elections for the LPD presidency. One of the central points of his platform that was drawing the attention of the FX market was his firm stance against the BoJ increasing lending rates.