US Dollar and Sterling Moneycorp Advice

London- 29th October 2007. The Dollar and Sterling still seem to be the talk of the town; the US Dollar staged a swift rally in a thin market simply because investors were not prepared to chase the Euro higher after the weekend's record high. Without the Euro to drive things forward Sterling was subject to a similar round of profit-taking. Some innocent bystanders will have been hurt in the scramble but most simply stood aside and waited for the clearout to run its brief but spectacular course. By evening things had returned to normal and the world was once again engaged in shorting the Dollar.

Existing Home Sales were down by a massive 8 per cent in October. Assuming current levels of activity, it will take estate agents until next September to sell the properties currently on their books. There was a moment of jubilation when September's New Home Sales went up by +4.8 per cent to an annual rate of 770,000. It sounded too good to be true and it was. New home sales were indeed up by +4.8 per cent but there was a catch in the calculations. The previous month's number was revised drastically downwards, from 795k to an eleven year low of 735k. What would have been a fall from 795k to 770k therefore became a rise from 735k to 770k, bang on the analysts' target.

Although there was no flood of bad news for Sterling it managed to leave its supporters feeling vaguely disappointed by the few things that did crop up. BBA mortgage approvals were 27 per cent fewer in September than a year ago and the size of the average mortgage was down for the fourth successive month. The Land Registry and Hometrack both reported slower house price rises. Hometrack showed a monthly fall in prices between September and October.

The most damaging factor for Sterling was a publication from its supposed protector, the Bank of England. The Bank's Financial Stability Report said that Britain is still at risk to further negative effects of the credit crunch. The report was written up by every news paper as describing an economic accident waiting to happen. It left an unpleasant taste that lingered for the rest of the week, dragging Sterling lower on most other fronts.

Sterling starts the week within a cent of its quarter century high against the Dollar and position-squaring before or after Wednesdays meeting of the Federal Open Market Committee could mean another Dollar rally. Whether it turns into anything more serious will depend on the committee's interest rate decision. There is still a strong argument for taking advantage of the current level to hedge exposures. Buyers of the Dollar should lock into the (forward) purchase of half their requirement.