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Pound Falls Third Day Versus Euro as House Prices Stall

Pound Falls Third Day Versus Euro as House Prices Stall

The pound depreciated for a third day against the euro, falling to the weakest level in 13 months, after an industry report showed U.K. house prices stagnated in January. Sterling dropped to the lowest in five months versus the dollar. Home prices in England and Wales were unchanged from December, after declining for the previous six months. Data released on Jan. 25 showed the U.K. economy shrank more than forecast in the final quarter of 2012, tipping it back toward recession.

Meanwhile, positive developments in the eurozone continued with improved German optimism which resulted in business confidence rising more than forecast. The Ifo institute’s business climate index, based on a survey of 7,000 executives, climbed to 104.2 in January from 102.4 in the previous month. This is the highest reading since June 2012 and the third straight gain.

In addition, the ECB said banks will repay more of its emergency three-year loans than forecast in another sign the region’s debt crisis is abating. It is estimated financial institutions will return €137.2 billion (compared to estimates of €84 billion) at the end of this month, the first opportunity for early repayment of the initial three-year loan.

On the FX markets the euro profited from a strong IFO business sentiment survey and from a much higher than expected repayment of LTRO borrowing by the banks. However, EUR/USD stopped short of testing a key resistance area. EUR/GBP on the contrary set a new rally high, helped by weaker UK Q4 growth.

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