- UK February mortgage data was better than expected.
- The data came after Fitch downgraded UK debt from AA to AA-
- Brexit and Coronavirus pose major challenge for the UK economy.
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.
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.