GBP/USD: Pound Jumps on Rate Hike Expectations, Sharp US Data

The British pound has surged on Monday, gaining about 100 points on the day, as GBP/USD has broken above the 1.71 line in the North American session. On the release front, US Pending Home Sales soared last month, while British Net Lending to Individuals also improved in May.

The British pound continues to gain ground against the retreating US dollar. On Monday, the pound has hit a high of 1.7113, its highest level since October 2008. Although Governor Mark Carey stated last week that any rate hike would be “limited and gradual”, there is growing sentiment in the markets that the BOE could raise rates before the end of 2014, rather than sometime in 2015, as the BOE had been insisting until very recently. The pound has taken full advantage of speculation over higher rates, and has soared about 350 points in the past two weeks against the US dollar.

The red-hot UK housing market has been a concern to the markets and UK policymakers for some time, as a sudden drop in house prices could rattle the UK economy. On Thursday, BOE Governor Carney announced measures to ally concerns of a housing bubble, toughening lending criteria and putting a cap on mortgages. Speaking after the publication of the BOE Financial Stability Report, Carney sounded upbeat about the British economy but noted that the housing market remained the number one risk to the country’s financial stability. Carney stated that the BOE had reached its “limit of tolerance” regarding the housing market.

In the US, the week started out in impressive style, as Pending Home Sales jumped 6.1%, crushing the estimate of 1.4%. This was the strongest gain since May 2013. US Housing numbers were excellent last month, as New Home Sales and Existing Home Sales both beat their estimates. Last week’s dismal Q1 GDP reading has weighed on the US dollar, so the currency could lose even more ground to the pound if the markets aren’t happy with this week’s numbers.

GBP/USD for Monday, June 30, 2014

GBP/USD June 30 at 15:30 GMT

GBP/USD 1.7105 H: 1.7105 L: 1.7009

GBP/USD Technical

• GBP/USD was steady in the Asian and European session, but has posted strong gains in North American trading.
• 1.7000 continues to provide support role. This key level has some breathing room as the pair trades above 1.71.
• 1.7183 is providing resistance. This is followed by 1.7228, which has held firm since October 2008.
• Current range: 1.7000 to 1.7183.

Further levels in both directions:

• Below: 1.7000, 1.6920, 1.6825 and 1.6700
• Above: 1.7183, 1.7228, 1.7383 and 1.7482

OANDA’s Open Positions Ratio

GBP/USD is pointing to gains in short positions on Monday. With the pound posting sharp gains, numerous long positions have been covered, resulting in a greater percentage of open short positions. A strong majority of open positions in the GBP/USD ratio are short, indicative of a trader bias towards the dollar reversing its current nosedive and moving higher.

GBP/USD Fundamentals

• 8:30 British Net Lending to Individuals. Estimate 2.5B. Actual 2.7B.
• 8:30 British M4 Money Supply. Estimate +0.2%. Actual -0.1%.
• 8:30 British Mortgage Approvals. Estimate 62K. Actual 62K.
• 13:45 US Chicago PMI. Estimate 63.2 points. Actual 62.6 points.
• 14:00 US Pending Home Sales. Estimate 1.4%. Actual 6.1%.

*Key releases are highlighted in bold

*All release times are GMT

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.