Solid UK Mortgage Approvals Uptick Fuels Pound Sterling US Dollar (GBP/USD) Exchange Rate Boost
December’s UK mortgage approvals data showed a solid upswing in demand, encouraging the Pound Sterling to US Dollar (GBP/USD) exchange rate to trend higher.
This latest evidence of consumer confidence picking up in the wake of the snap general election result bolstered hopes that the UK economy could recover some of its lost momentum in the near future.
Stronger consumer credit and net lending to individuals figures added to the positive mood of Pound Sterling (GBP), even as markets braced for the UK’s imminent departure from the EU.
As a significant degree of uncertainty still surrounds the future relationship between the UK and EU, though, GBP exchange rates may struggle to hold onto any particular sense of bullishness for long.
Increasing doubts over the likelihood of the two sides achieving a fresh trade deal before the end of the year look set to cast a significant shadow over the Pound.
Global Coronavirus Concerns Shore up US Dollar Demand
The US Dollar (USD) continued to benefit from a general sense of market risk aversion, meanwhile, as the spread of the Wuhan coronavirus weighed on sentiment.
With the disruption stemming from the outbreak looking set to drag global growth down in the first quarter, at least, investors saw incentive to favour safe-haven assets.
However, USD exchange rates could falter this afternoon if December’s US personal consumption expenditure data fails to impress.
As the measure remains the Federal Reserve’s preferred gauge of inflationary pressure any signs of softening here would increase the pressure on policymakers to ease.
While the Fed has shown a willingness to leave interest rates on hold in the coming months evidence of weaker inflation could swing policymaker sentiment, making a potential move more likely.
Any deterioration in January’s Chicago PMI could also weigh on USD exchange rates heading into the weekend.
Solid Finalised UK Services PMI to Offer Further Pound Gains
Further volatility could be in store for the Pound next week thanks to the release of the finalised UK manufacturing and services PMIs for January.
After the strong performance of the service sector in the initial reading investors expect to see confirmation that growth rebounded at the start of the year.
Any negative revision to the PMI, however, would leave the Pound exposed to significant selling pressure as confidence in the domestic economy eases.
Unless the service sector looks set to deliver a solid three months of growth, in spite of lingering Brexit-based uncertainty, the GBP/USD exchange rate may come under pressure.
As long as the manufacturing sector remains trapped in a state of contraction, though, this is likely to remain a dampener on the Pound.
Growing doubts over the health of the first quarter UK gross domestic product could limit the potential for further GBP/USD exchange rate gains.