Sterling attempts to rebound on better February UK mortgage data

Positive UK mortgage data

The British pound pared back earlier losses
against the US dollar after the Bank of England (BOE) released positive
February mortgage data.

The data showed that mortgage approvals rose
to 73,500 in February. This was higher than the estimated 68.21k and the
previous 71.34k. The number was also the highest it has been since 2014.

Meanwhile, the number of mortgages
reapprovals rose to 53,400 while the net mortgage borrowing by UK households
rose to £4.1 billion.

In the same month, consumer credit declined
to £0.9 billion, which is lower than the overall average of £1.1 billion.
Businesses borrowed about £1.3 billion.

The UK mortgage data show that the housing market was resilient before the Coronavirus crisis, which intensified in March. As such, we expect future numbers to be relatively lower because of the impact of the disease.

For example, just last week, the UK
government decided to suspend the housing market after lenders complained about
valuation problems. Additionally, demand for houses had already dropped before
that. According to data from Zoopla, the interest of the housing sector had already
dropped by 40% in March.

UK downgraded by Fitch

The money and credit report from the Bank
of England came two days after Fitch downgraded the country’s debt. In a statement,
the rating agency cited the current shutdown, a potential problem in the budget,
and a lingering problem associated with Brexit. As a result, Fitch expects the UK
debt to increase by 9% of GDP from the previous 4%.

The rating cut came as the number of Covid-19
cases has continued to increase in the UK. According to the government, the
number of cases has risen to more than 19,000, while the number of deaths has risen
to more than 1,200.

Brexit problem

Another problem cited by Fitch was about
Brexit. In a statement last week, the UK government said that talks with the
European Union would continue
through video link. This will be a toll-order, considering that Boris Johnson
and Michel Barnier have been infected. Also, the number of people involved in
the negotiations make it almost impossible for the discussions to happen through
video.

GBPUSD Technical Analysis

On the four-hour chart, the GBP/USD pair triple-bottomed
last week at around 1.1432. The pair rose and reached a high 1.2485, which is between
the 50% and 61.8% Fibonacci Retracement level. At the current price of 1.2383,
the price is slightly above the 50% Fibonacci level and above the 14-day and
28-day exponential moving averages.

Meanwhile, the pair is in the fourth corrective
wave of Elliot Wave. Therefore, I expect a minor pullback to the 38.2% Fibonacci
level before the price resumes the overall upward trend.