French mortgage currency update

Just as it was gearing up for roast swan and chestnut stuffing the pound suffered a setback in December. There was no single point of failure. It was the result of a combination of factors, some serious, some less so. The UK economy bore some of the blame. Some 33,000 public sector employees were laid off in a single month and none of them found new jobs in privately-owned firms. It was not what the chancellor had promised: he had promised the private sector would take up the slack. In November the public sector net borrowing requirement - the gap between tax revenues and public spending - hit a record £22.8 billion, not a clear sign that the government would be able to close the budget gap within five years. Economic growth in the third quarter of the year was downgraded from 0.8% to 0.7% at its second revision. It was not a big deal in itself but was seen as symptomatic of an intrinsically soft UK economy.

The euro has its own problems, not least the threatened downgrades of the credit ratings for government debt in Greece, Ireland, Spain and Belgium. A summit meeting of EU leaders in mid-December delivered an agreement that there should be a long-term plan to preserve financial stability but the details were sparse. Until investors see the details they will remain unconvinced. As long as they dislike the euro they will lean towards the dollar but it is difficult to tell whether they are buying it because they like it or selling the euro because they dislike it. From sterling's point of view, the euro's performance is important because Britain's economy is so closely involved with Ireland and the continent. If the euro goes down against the dollar the pound will surely follow.

The Christmas fortnight is always a dull period for financial markets. This one shows no sign of being any different. Exchange rates moved but the significance of any movements is likely to be minimal. The four cents that sterling has lost in the last month may well be important; its price action in the last ten days was always unlikely to be significant. For more news for mortgages in France please visit our website.

Posted in: Currency,French mortgage,UK economy