GBP/USD clinches a new high on upbeat UK mortgage data

Written by: Crispus Nyaga
July 29, 2020
  • The GBP/USD pair rose to the highest level since March 10 as investors reacted to strong mortgage data.
  • Mortgage approvals increased to 40,000 in June from the previous 9,000.
  • The pair will next react to the Federal Reserve interest rate decision that will come later today.

The uptrend of the GBP/USD pair continued today as traders reacted to upbeat numbers from the Bank of England (BoE). The pair is trading at 1.2973, which is the highest it has been since March 10 this year.

GBP/USD
GBP/USD rally accelerates

UK consumer lending accelerates

The GBP/USD pair reacted to strong lending numbers from the BoE. The data showed that households and businesses continued to increase their savings in June. Sterling money increased by £16 billion in June. In the three months to June, the two saved more than £175 billion in banks, which is a bigger number than in most years.

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Meanwhile, households borrowed an extra £1.8 billion in loans after paying £7.3 billion and £3.3 billion in the previous three months. In the same months, corporates raised £10.7 billion in June. They raised most of these funds in the financial market.

The mortgage industry also made some recovery in June. The number of approvals increased to 40,000 from the previous 9,300. Analysts polled by Reuters were expecting mortgage approvals to jump to about 33k. These approvals are still below the 73,000 that were approved in February, before the crisis.

These numbers send a signal that the UK economy is making a strong recovery as the number of coronavirus cases fall. Data from Worldometer shows that the country confirmed just 580 new infections yesterday. At its peak in April, the country was confirming more than 6,000 new cases every day.

Other recent numbers have been strong. For example, on Friday, data from Markit showed that the manufacturing and services PMIsincreased to the highest levels this year. And yesterday, data from CBI showed that retail volumes rebounded in July to +4 from -37. That was the biggest jump since April 2019.

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Focus shifts to the Fed

With no data expected from the UK today, the pair will react to the Fed interest rate decisionscheduled for later today. Analysts polled by Bloomberg expect that the bank will leave the main lending rate unchanged between 0% and 0.25%. However, they believe that the bank will provide a guidance on what to come.

For example, an analyst at Deutsche Bank told Bloomberg that he expects the bank to set the stage of what will come in the September meeting. The Fed has several options at its disposal. For example, it could follow in Bank of Japanand Reserve Bank of Australiain implementing yield curve control. Also, the bank could increase the pace of its asset purchases. Just yesterday, the Fed agreed to extend most of its lending programs.

Meanwhile, the GBP/USD pair is also reacting to preliminary trade numbers from the US. The data showed that the country’s trade deficit narrowed to $70.6 billion in June from the previous $75.25 billion. Also, retail inventories (ex-auto) declined by 0.8%.

GBP/USD technical outlook

GBP/USD
GBP/USD technical analysis

The GBP/USD pair is trading at 1.2973, which is a few pips shy of the important resistance level of 1.3000. On the daily chart, the price is slightly below the 78.6% Fibonacci retracement level. It is also above the 50-day and 100-day EMA while the Chande momentum oscillator has risen to the highest level since first week of June. Therefore, the pair is likely to continue rising as bulls aim for the next resistance at 1.3000.