The Pound Sterling (GBP) exchange rate experienced minimal movement during most of Monday’s European session.
Last week’s lackluster UK figures left Sterling struggling and the currency maintained a weaker position over the weekend.
However, the Pound Sterling to US Dollar (GBP/USD) currency pairing was able to advance modestly before the close of trading as the International Monetary Fund (IMF) intimated that the Bank of England (BoE) will need to hike interest rates soon if UK inflation accelerates.
In a report published on Monday the IMF stated; ‘Accommodative monetary policy is appropriate for now, given weak inflation pressures, but policy might need to be adjusted quickly if inflation takes off. Interest-rate increases may also need to be considered if macroprudential tools are insufficient to deal with financial-stability risks from the housing market.’
The IMF added that the BoE needs to be prepared to increase mortgage restrictions in order to counter the risks posed by the UK’s housing market, although ‘the economy has rebounded strongly and prospects are promising.’
On Friday UK data confirmed that the nation’s economy returned to pre-crisis levels in the second quarter, expanding by 0.8% from the first quarter.
While the IMF’s endorsement of a potential BoE rate increase could have caused notable Pound gains, the institution did also acknowledge that the British currency is slightly overvalued.
There was little European currency news to be found at the start of the week as economic reports for regions like the UK and Eurozone were decidedly lacking.
Consequently, the GBP/EUR exchange rate was trending in a narrow range. This period of calm is likely to be challenged however as the week progresses and Eurozone employment and inflation figures are published.
The Pound Sterling to US Dollar (GBP/USD) exchange rate hit a brief high of 1.7000.
The Pound’s relationship with the US Dollar was aided as the North American asset softened in response to speculation regarding the upcoming second quarter growth data for the world’s largest economy.
While expansion of 0.3% has been forecast for the second quarter, the US may not have rebounded to the extent economists have projected.
The US Dollar also came under some pressure as US Pending Home Sales were shown to have decreased by 1.1% in June. An increase of 0.5% had been anticipated.
A representative from the National Association of Realtors said of the result; ‘Activity is notably higher than earlier this year as prices have moderated and inventory levels have improved. However, supply shortages still exist in parts of the country, wages are flat and tight credit conditions are deterring a higher number of potential buyers from fully taking advantage of lower interest rates.’
Pound Sterling (GBP) Exchange Rate Forecast
Today the Pound could fluctuate in response to the UK’s Mortgage Approvals report.
Any signs that the UK’s housing market is cooling could see investors pare rate hike bets and cause a depreciation in the Pound.
The Pound Sterling to US Dollar (GBP/USD) exchange rate could also experience movement in response to the US Consumer Confidence gauge.
The measure is expected to have risen from 85.2 in June to 82.5 in July. If the data comes in at or above expected levels the US Dollar could push the Pound lower.
UPDATED 09:30 GMT 29 July, 2014
Pound Strengthened by UK Mortgage Approvals Gain
On Tuesday the Pound was enjoying a moderately stronger relationship with peers like the Australian Dollar and US Dollar.
The British asset also advanced modestly on the Euro and US Dollar following the release of UK Mortgage Approvals figures.
In a sign that the UK’s housing sector might not be cooling after all, Mortgage Approvals were shown to have risen by more than anticipated in June, achieving a four-month high of 67,196.
This report conflicts slightly with other UK housing data published in recent weeks and adds to the argument in favour of a Bank of England interest rate increase.
The Pound Sterling (GBP) Exchange Rate swiftly trimmed its initial advance against the US Dollar as investors looked ahead to today’s US Consumer Confidence index. The sentiment measure is expected to show improvement.
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