Pound sterling extends bullish breakout
The British pound extended its bullish breakout after Bank of England Governor Mark Carney announced the central bank will trim mortgage incentives in favour of kick-starting the small business sector.
The BOE’s Fund for Lending initiative was launched in June 2012 to help homeowners and businesses rebound from the financial crisis. The plan extended cheap finance to banks in order to encourage lending and promote recovery in the housing sector. In response, the residential real estate market has been expanding at a torrid pace, with new home volumes gaining 19 percent in the third quarter. With the housing market secured, the Fund for Lending initiative will be available only to small- and medium-sized enterprises.
Pound sterling took advantage of the greenback’s idleness amid Thanksgiving, soaring 49 pips to 1.6336. The pair has advanced more than 7.2 percent over the past six months, making the British pound the strongest performing developed-nation currency during that period. The pound is coming off its strongest rally since January after government data confirmed the UK economy expanded 0.8 percent last quarter, matching initial estimates.
The pound’s European rival, the euro, was unable to sustain its intraday rally despite several upbeat indicators from Germany and the broader currency region. Germany’s Consumer Price Index rose 1.3 percent from a year-ago, exceeding estimates. Euro area business sentiment also exceeded estimates, led by growing optimism in services and industry. The EURGBP fell 9 pips to 0.8325 in North American trade.
Britain’s recovery has been one of the top newsmakers of the year, as the service, manufacturing and residential housing markets continue to expand. According to the Organisation for Economic Cooperation and Development, the UK economy is on pace to grow 1.4 percent this year and 2.4 percent next year, higher than initial forecasts of 0.8 percent and 2.2 percent, respectively. The Paris-based organization cut its growth forecast for the global economy to 2.7 percent this year and 3.6 percent next year, compared to initial estimates of 3.6 percent and 4 percent, respectively.
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