GBP/USD Hits 2-Month Highs as UK Mortgage Approvals Accelerate
The GBPUSD advanced for a third consecutive day on Wednesday amid broad US dollar weakness and rising UK mortgage approvals, a sign housing demand was rebounding after seven months of weakness.
Cable climbed to its highest level since January 2, hitting a high of 1.5540 in European trade. It would subsequently consolidate at 1.5490, advancing 0.21 percent. The technical bias is slightly bullish, with initial support located at 1.5414. On the upside, cable is likely to face resistance at 1.5521.
In other trading, the pound rose to fresh multiyear highs against the beleaguered euro, as the EURGBP declined 0.18 percent to 0.7323. The pair is testing initial support at 0.7319. Resistance is likely found at 0.7354.
The US dollar was broadly weaker on Wednesday as investors geared up for a second day of testimony by Federal Reserve Chairwoman Janet Yellen. The dollar index declined 0.14 percent to 94.36.
In economic data, UK mortgage approvals rose in January for the first time since last June, although authorizations were still down significantly from a year ago.
British banks approved 36,394 mortgages in January, compared to 35,816 in December and expectations calling for 36,200, the British Bankers’ Association reported on Wednesday. Despite the increase, mortgage approvals were still down 26 percent from a year earlier.
“The housing market appears to be bottoming out with a slight increase in approvals for new purchases in the last month but this is still significantly down on the levels of activity we saw last year,” said BBA chief economist Richard Woolhouse.
The BBA also said personal loans and overdrafts rose 3.9 percent annually in January, the highest rate since 2008.
“There continues to be strong demand for personal borrowing which is at its highest levels in recent years,” added Woolhouse.
The BBA report came just one day after Bank of England Governor Mark Carney told British lawmakers that inflation could turn negative over the next few months before gradually rebounding within two years. UK inflation fell to record lows in January, rising only 0.3 percent annually.
“The [Monetary Policy Committee] will conduct policy in order to bring inflation back to target, probably within two years, and that should inform people, particularly as they are forming judgements about appropriate wages,” Carney told lawmakers on Tuesday.
He also said that the biggest risk posed by low inflation is tied to the labour market, as falling prices give employers an excuse to offer lower wages.
Average earnings rose 2.1 percent annually in the three months to December, outstripping inflation by the widest margin since April 2008. The BOE expects average earnings to rise 3.5 percent annually in the final quarter of 2015.
The Office for National Statistics will release preliminary fourth quarter GDP estimates on Thursday. The UK economy is forecast to grow 0.5 percent in the final three months of 2014, compared to 0.7 percent in the third quarter. This translates into an annual growth rate of 2.7 percent, unchanged from the third quarter.
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