The Beeb reports that UK house prices are rising sharply and that the pound has hit a 14-year high against the dollar. What it doesn't say is that these two facts are related. Our chart shows that there's a strong correlation (0.53, R-squared = 28% since 1995) between annual changes in the $/£ rate and relative house price inflation in the two countries.
When UK house prices rise relative to the US's, sterling tends to strengthen against the dollar. There's probably a simple reason for this. When house prices rise, so does wealth (house prices are a measure of permanent income) and hence the demand for money. And rising demand for money should strengthen a currency.
Most pundits reckon UK house prices will continue to rise relative to US ones for a while; this is the message of strong UK mortgage approvals and the high inventory of unsold US houses. This suggests the dollar could continue to weaken.
Personally, I'm surprised by this, and a little sceptical. Exchange rates can't be this predictable, can they?