Bank of England reveals mortgage cap. Market set for UK GDP release

Claire Hogarth27/Jun/2014Currency Updates

GBP

London closed with sterling rising across the board with the Bank of England financial stability report introducing measures to stave off the potential of a damaging housing bubble. This morning saw the release of retail consumer confidence figures which have risen to a 9 year high in a fresh sign that consumers are increasingly willing to dip into their pockets.

Carneys cap on mortgages is unlikely to do much in the short term but the medium to long term effect should be positive and the initiative was well received by the city and media. The rules will simply put a cap on banks’ riskier lending. No more than 15% of any single institution’s new house purchase lending can be at a loan to income ratio of 4.5 or more, this has an aim of ensuring banks and mortgage holders are not left overexposed if the housing market sharply pulled back.

London opens this morning with sterling well supported; set to be a big Friday with GDP, business investment and index of services figures set for release at 9.30 BST.

EUR

London closed with the euro dipping further against both sterling and the dollar.

Traders with have stethoscopes at the ready today as the EU takes its economic pulse. Data releases are due on business climate, economic sentiment, and consumer and industrial confidence, in a good indication of whether the European Central Bank’s newly aggressive measures have had any effect. Draghi was interviewed in Frankfurt earlier this week and clearly maintains the view that he is willing to utilise fresh methods to guard against Eurozone deflation. If today’s releases fail to deliver, one would assume we see euro weakness.

Against its major peers, in the short term the € is likely to remain trading range bound; we have key resistance levels in EUR/USD that continue to be tested with little sign of them being breached.

USD

London closed with the dollar dipping against sterling following Carney’s comments prompting a brief sterling rally. The greenback looks set to end the week with a whimper, trading now at a monthly low against the yen and being pushed down against sterling.

Downbeat US spending data prompted a dollar sell off yesterday – the figures give investors no reason to hope for higher US rates anytime soon. This follows on the heels of this week’s steep downward revision to first quarter growth. The revision has prompted some analysts to cut their forecasts for US growth and reinforced a view that the Fed should be in no hurry to tighten policy.

Only data out of US today is consumer sentiment.

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Written by Claire Hogarth

Marketing Executive at Ebury. English Literature graduate from the University of York and a motivated professional.