Sterling Gains Traction Despite Weak Mortgage Approvals
The GBPUSD continued to gain a foothold after holding support levels as the U.K. government borrowing data and sub-forecast BBA mortgage data had little impact on the currency pair. In the wake of last week’s Scotland’s “No” to independence vote markets are now re-focused on U.K. fundamentals, which is characterized by benign inflation and wage data that is leaving the BoE with a wait and see policy stance.
U.K. BBA mortgage approvals came in below forecasts at 41.6k, ebbing from 42.7k in the previous month. The median expectation had been for a 42.9k outcome. The BBA data has been trending downwards since peaking at 50.k in January. The decline in approvals reflects high property prices and the impact of the Mortgage Market Review in April, which has pushed up mortgage lending rates. The BoE also implement earlier in the year a cap on loan-to-income ratios.
U.K. government borrowing continued to worsen in August. The data for net borrowing totaled 11.6 billion, up 6.1% year over year, near the survey median forecast. The government is falling behind its target to reduce borrowing by 10% in 2014-15, partly due to sluggish growth in income tax receipts and social security payments, which rose just 1.6% year over year in August, reflecting anemic wage growth despite an improving job market.
Technical the GBPUSD is gaining momentum after holding support near the 10-day moving average at 1.6290. Resistance on the currency pair is seen near the recent highs at 1.6520. Momentum on the currency pair has turned positive with the MACD (moving average convergence divergence) index generating a buy signal. This occurs when the spread (the 12-day moving average minus the 26-day moving average) crosses above the 9-day moving average of the spread. The index moved from negative to positive territory confirming the buy signal.
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