British Pound

When one hears the phrase "housing crisis" uttered, the US immediately comes to mind. Not without reason, of course, since the US housing market is the largest in the world, and the scope of any US housing crisis is sure to dwarf a comparable crisis in any other country, in absolute terms. At the same time, let's not forget that prices in the UK, for example, began to decline earlier than in the US. In addition, as one columnist points out, the impact of the UK housing crisis may be relatively greater on the UK economy. While some of the statistics he quotes are dubious, housing and consumer debt (on a per capita basis)  may in fact be larger in the UK than in the US.

The US Federal Reserve Bank is known for ambiguity and vagueness. The Bank of England, it appears, is not trying to emulate this approach. The Bank put an end to speculation about its near-term monetary policy by announcing that it does not plan to cut interest rates for at least two years. Apparently, inflation has breached the Bank's 2% target, and its internal models are forecasting that it won't be until 2010 that price inflation returns to a more palatable rate. This is bad news for the British economy, which is in the throes of an economic downturn precipitated by the housing crisis and would surely benefit from a loosening of monetary policy.

The anecdotal evidence for surging retail interest in forex is cropping up everywhere. Moreover, investors are no longer even limiting themselves to the spot market, utilizing derivatives to speculate on future exchange rates. In the UK, for example, 10% of investors intending to purchase real estate in the EU are utilizing forward agreements to hedge their exposure to the Euro, which has risen 10% against the Pound since the beginning of 2008. Evidently, prospective home buyers are hoping that the Euro returns to 2007 levels, which would significantly lower the cost of buying property there. However, if the Euro continues to appreciate, such investors could end up losing more than they bargained for. Homes Worldwide reports: