The Pound to US Dollar exchange rate (GBP/USD) rallied by over 90 pips yesterday to reach its highest level since October 2008. Sterling struck 1.7100 for the first time in 5.5-years as traders looked to balance the books at the end of the month/quarter.
In terms of concrete data releases, yesterday’s figures appeared to support US Dollar strength rather than weakness as British mortgage approvals dropped and US pending home sales rose.
Data out of the United Kingdom showed that mortgage approvals slid from 62,800 to an 11-month low of 61,700 during May. The slight drop-off in home loans could have hurt the Pound because the overheating housing market was recently trumpeted by Bank of England Governor Mark Carney as the most pertinent threat to the stability of the UK economy (and therefore the most important factor in considering when to raise interest rates).
However, the 11-month low mortgage approvals figure did not have a negative impact on Sterling because the measure for total mortgage lending printed at £2 billion, which its highest level since the financial crisis.
In the United States it was reported that pending home sales accelerated at an 8-month high pace of 6.1% during May but the result (which was over four times as strong as analysts had anticipated) failed to breathe life into the ‘Greenback’ as investors sought to balance the books in time for the month-end.
Another factor that may have influenced traders to drive ‘Cable’ higher was a report from Fitch – the ratings agency. Fitch downgraded its 2014 estimate for US growth from 2.8% to 2.0% and upgraded its UK GDP forecast from 2.5% to 3.0%.
The diverging growth outlooks could lead to a relatively long timespan between the Bank of England’s first interest rate rise and the first rate hike from the Federal Reserve.
The Pound to US Dollar exchange rate (GBP/USD) is currently trading just shy of the next technical barrier at 1.7125. If that level is broken in the next few days then it will be taken as a bullish signal for Sterling and could help the Pound settle above 1.7000 in the near-term.
Later today the UK manufacturing PMI is predicted to print at 56.8 for June, which although slightly lower than May’s 57.0 is still substantially higher than the predicted outcome of the US factory output PMI (55.9).
If the British figure beats the market consensus, or if the US number disappoints, then there is potential for further Sterling gains against the ‘Greenback’.
UPDATED: 09:40 GMT 02 July, 2014
The Pound to US Dollar (GBP/USD) Jumps after UK Reports
While yesterday’s moderately disappointing US manufacturing figures restrained the US Dollar, the Pound (GBP) was able to leap against its rivals on Wednesday as the UK’s construction PMI printed far above expected levels.
The unexpectedly upbeat result helped the Pound to US Dollar (GBP/USD) exchange rate surge to a high of 1.7177 and also helped Sterling advance on several of its other main peers.
The Construction PMI came in at 62.6 in June, a substantial improvement on the previous month’s 60.0 reading.
As the day continues the Pound is likely to maintain its bullish relationship with its peers.
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