interesting piece on the interplay between the dollar, the pound, and the UK/US housing markets on the financial times site, with the suggestion that a long/short hedge could be made of it:
A notional UK investor who had bought an Ã¢â‚¬Å“averageÃ¢â‚¬Â house in October last year would have seen an 8 per cent gain over 12 months, according to the Nationwide house prices index.
Buying an average house at the same time in the US would have resulted in a 3.5 per cent decline, the National Association of Realtors said this week. (Note that this is more bearish than other surveys: the Office of Federal Housing Enterprise Oversight showed house prices slackening but still growing in the third quarter).
Then take currency effects into account. On October 31, 2005, Ã‚Â£1 was worth $1.764. A year later, it stood at $1.91. So a UK house would, a year later, be worth 21.2 per cent more than its US equivalent[…]
How has this happened? The problems of US housing are well known. In the UK, where a rate cut last year helped revive the market, lending to the household sector is growing at more than 10 per cent – signs of a bubble. This feeds into forex. With house price inflation on this scale, the Bank of England can surely not ease rates any time soon. This strengthens sterling against the dollar, which is weakened by the widespread belief that the housing downturn will force the Federal Reserve to cut rates. UK housing is pushing up sterling, while US housing is pushing down the dollar.