Demand for UK Mortgages Falls
The Bank of England’s (BoE) latest survey of credit conditions pointed towards a lower level of domestic confidence yesterday, with demand for mortgages falling in the final three months of 2019 – further evidence that the UK economy is stuck in a rut. Under normal circumstances, this would trigger a dip in the value of the pound to US dollar rate. However, it was given a reprieve by the rising odds of a January interest rate hike, which has already been priced into the market.
On Wednesday, BoE policymaker Michael Saunders said: “It probably will be appropriate to maintain an expansionary monetary policy stance and possibly to cut rates further, in order to reduce risks of a sustained undershoot of the 2% inflation target.”
Doubts Over US-China Trade Deal Grow
Having formally signed a phase one trade deal on Wednesday, US and Chinese officials were waxing lyrical about its potential impact. President Trump, for example, claimed it would be “transformative” for the US economy. However, with just a small proportion of the tariffs reversed and relatively minor concessions granted by both parties, analysts are concerned that the trade war could continue to damage the global economy. Ongoing uncertainty that hindered the dollar, giving the GBP vs USD a leg up yesterday.
US-China trade war concerns were allayed slightly by encouraging retail sales, which held steady in December, according to official data released by the Commerce Department on Thursday. Sales in the US rose 0.3% last month, matching an upwardly revised 0.3% in November and falling in line with the forecast. While the closely watched Retail Sales Control Group exceeded expectations, increasing by 0.5% following a 0.1% decline in November.
That wasn’t the end of the good news on the US economic data front. The number of Americans filing for unemployment benefits claims fell unexpectedly for a fifth straight week last week. And the Federal Reserve Bank of Philadelphia’s business index showed that manufacturing activity on the east coast picked up at the start of the year. The numbers helped the dollar to trim its losses against a basket of currencies, although the pound versus dollar rate largely traced an upward trajectory.
We could see the pound sterling to USD rate struggle if today’s UK Retail Sales figure for December reveals reduced levels of consumer spending.
Dollar investor will be hoping for another raft of positive data that helps distract from the uncertainty surrounding the US-China trade war. Top of the agenda will be the Michigan Consumer Sentiment Index and Industrial Production figures.
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