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Mortgage Lending Restrictions Buoy Sterling

David Becker
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Mortgage Lending Restrictions Buoy Sterling

Sterling rallied on the Bank of England announcement of a cap on mortgage lending, which will mean that no more than 15% of banks’ lending can over than 4.5 times income. The measure is broadly in line with expectations, though sterling has rallied regardless with the announcement serving to highlight the contrasting stance of the BoE relative to the other major central banks. Cable spiked to a peak of 1.7035, more than a 60 pip gain on earlier lows. This brings the major-trend peak at 1.7063 back into scope.

The BoE’s Carney announced measures to restrict mortgage lending. Carney also said that lenders should stress test whether borrowers can afford a three-percentage point rise in interest rates over a five-year period. Carney repeated that biggest risks to the economy stemmed from the housing market, although the threat is not seen as being “imminent.” He argued that the measure will prevent a slide into risker lending and an increase household indebtedness, and the cap on loan-to-income ratios will reduce the odds of experiencing another house market crash. The rising odds of an interest rate hike, high prices and the impact of the Mortgage Market Review, have already started to see mortgage approvals tail off.

The GBPUSD is poised to test the 1.7063, highs while support is seen near the 10-day moving average at 1.6994. Momentum is positive with the MACD (moving average convergence divergence) index printing in positive territory with an upward sloping trajectory. The RSI (relative strength index) moved higher with price action, reflecting accelerating positive momentum, while printing near 64, which is in the upper level of the neutral range.

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