Pound Sterling to US Dollar (GBP/USD) Exchange Rate Gains Ground as UK Mortgage Approvals Rise

Pound Sterling US Dollar (GBP/USD) Exchange Rate Pushes Higher as UK Mortgage Approvals Beat Forecasts

Better-than-expected BBA mortgage approvals data encouraged the Pound Sterling to US Dollar (GBP/USD) exchange rate to gain further ground this morning.

Although mortgage approvals still saw a decline on the month investors instead focused on the improvement in the year-on-year figure, which rose for the first time since September 2017.

This suggests that the UK housing market is in a better state of health than previously thought, giving Pound Sterling (GBP) a fresh boost against its rivals.

Even so, as Labour leader Jeremey Corbyn called for an early end to the parliamentary recess in order to facilitate an earlier vote on the Brexit deal, market jitters persisted.

With a sense of political uncertainty still casting a shadow over the UK outlook the strength of the GBP/USD exchange rate was tempered.

Increased Market Risk Appetite Limits US Dollar (USD) Demand

As the mood of global stock markets improved ahead of the weekend this limited the appeal of the safe-haven US Dollar (USD).

While worries over the global economic outlook remain a fresh lull in market selling left USD exchange rates on a downtrend as investors bought back into higher-yielding assets.

In the wake of December’s disappointing US consumer confidence index, which dipped from 136.4 to 128.1, the mood towards the US Dollar has soured.

With the US economy showing signs of coming under pressure the odds of the Federal Reserve continuing to tighten monetary policy have appeared to diminish further.

Although concerns over the security of Fed Chair Jerome Powell’s job eased, the upside potential of the US Dollar remains limited by market speculation over the central bank’s outlook.

US Dollar (USD) Exchange Rates Vulnerable to Widening of Advance Goods Trade Deficit

This afternoon’s US advance goods trade deficit could put further pressure on USD exchange rates if the deficit fails to narrow as forecast.

Any widening of the goods trade deficit would leave the US Dollar exposed to fresh downside pressure, given existing worries over the US trade picture.

If the deficit continues to expand this is likely to fuel the protectionist trade rhetoric of the Trump administration, giving the GBP/USD exchange rate an additional boost.

Further US Dollar weakness may also be in store as a result of December’s Chicago PMI, which is expected to slide from 66.4 to 60.3.

As long as the signs continue to point towards a weakening of the US economy USD exchange rates are likely to remain on a weaker footing.

Underwhelming UK PMIs could Expose GBP Exchange Rates to Fresh Downside

The mood towards the Pound could sour next week, however, if December’s UK PMIs fail to impress.

After November’s disappointing data any fresh evidence that the UK economy is losing momentum could weigh heavily on GBP exchange rates.

If the PMIs indicate that the UK economy ended 2018 on a weaker note the GBP/USD exchange rate could reverse its recent gains.

On the other hand, a stronger performance from the manufacturing or service sectors may give the Pound an additional boost.

While Brexit-based uncertainty looks set to weigh on growth in the months ahead any upside surprises in UK data could shore up the GBP/USD exchange rate in the short term.

Hannah Wilson

Contact Hannah Wilson