GBP/USD unstoppable rally continues as UK house price spike

Written by: Crispus Nyaga
July 31, 2020
  • The GBP/USD pair rose sharply as traders reacted to strong numbers from the UK.
  • According to the Nationwide Society, the house price index rose by 1.5% in July.
  • The pair is also reacting to the overall weaker US dollar as US economic recovery stalls.

The GBP/USD is up by 0.25% today as investors react to the overall dollar weakness and the upbeat housing data from the UK. The pair is trading at 1.3130, which is its highest level since March this year. Further, the pair is having its best month since October 2019.

GBP/USD has been in an upward trend

UK house price index jump

The GBP/USD after Nationwide Society released strong house price index data. The numbers showed that house prices rose to 1.5% in July as demand for houses recovered after the lockdowns. Analysts were expecting the prices to fall by -0.1%. On a month-on-month basis, prices rose to 1.7%, reversing the -0.1% decline in the previous month. The average house price rose to £220,936 from the previous £216,403.

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The society attributed the increase in prices to increased demand. That was mostly because people who had planned to buy homes before the lockdown rushed to the market. It also said that behavioural shifts also boosted the demand as more people reassessed their housing needs because of the lockdown.

Another reason was the stamp duty holiday implemented by the government. In a statement, the society said:

“These trends look set to continue in the near term, further boosted by the recently announced stamp duty holiday, which will serve to bring some activity forward.”

This data came a few days after the Bank of England (BOE) released strong mortgage lending data. The bank said that mortgage approvals in June rose to 40K from the previous 9.2K. The amount of mortgage loans lent rose to £1.89 billion from the previous £1.26 billion.

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Dollar weakness contributes to sterling strength

The GBP/USD pair has also jumped because of the overall weakness of the US dollar. The US dollar index has dropped to the lowest level in more than 2 years as questions remain about the US economy.

That is after data showed that the number of Americans signing for unemployment benefits rose in the previous week. This was the second consecutive week of increases. Also, another data showed that the US economy contracted by more than 30% in the second quarter.

Further, divisions in Washington mean that the economy will continue to suffer. This week, two stimulus bills proposed by Republicans and Democrats failed to pass in the Senate. With unemployment benefits about to end, there are risks to the US economy.

All this is happening at a time when the rest of the world is growing. The Chinese economy expanded by 5% in the second quarter and PMI data released today showed that the country is making progress.

Europe too is growing. Data released today showed that the German retail sales rose by 5.9% in June. Also, EU leaders recently passed a giant 750 billion stimulus package.

GBP/USD technical analysis

GBP/USD technical forecast

The GBP/USD pair has been in a strong upward trend as shown in the daily chart. It has climbed in the past 12 consecutive days. The price is above the 100-day and 50-day EMAs. Also, the RSI has moved to its highest level in months. Therefore, the upward trend is likely to continue as bulls target the next resistance level at 1.3200.