GBP supported by mortgage approvals

After this week’s healthy GDP (growth) report, sterling received another boost from yesterday morning's housing market data. Mortgage approvals rose more than expected and net consumer credit ticked higher, reinforcing a positive outlook for the pound. It should be noted that reputable CNBC frequents such as Kathy Lien and Boris Schlossberg believe that the Bank of England won't raise rates until 2016, but the fact remains that they will most probably be the second in line to hike, and one of the few major central banks with a tightening bias. The underperformance of sterling that we saw last week should turn into outperformance in the weeks to follow. All data points to further gains in the pound versus currencies of countries with an easing bias such as Canada, New Zealand, Australia and the eurozone. In retrospect, this week has been all about the US Dollar, but the focus will return to the pound next week with service, manufacturing and construction sector PMI figures scheduled for release. If activity accelerates, sterling could find enough momentum for a move to 1.58 interbank (IB) versus the USD.

Despite this positive outlook for the pound, it should be noted that the Bank of England has found that lending to businesses has collapsed by the largest amount in four years.

The euro had another poor day weakening over 0.5% against the pound. However, this was not directly down to any events within the eurozone causing weakness, but can be attributed to positive data boosting the pound.

The Athens Stock Exchange looks ready to fully reopen this week, as the ECB has approved a preliminary proposal. The reopening of the stock exchange will no doubt send a positive signal to the markets as it will be considered as another step towards normal business conditions. A CNBC report revealed the capital controls, which were enforced in Greece, had the largest effect on property and construction companies who were unable to import any goods and therefore halted all business was.

Later today, the results for Spanish, German and Italian economic data are released. The results from these are likely to have a significant effect on the euro, especially if any results differ largely from their forecasts.

As expected, the Federal Reserve opted to leave rates unchanged yesterday, although there were some key points from the minutes to take away. Whilst the statement remains barely changed from the one released after June's policy decision, the Fed does sound a little more enthusiastic on the improvements in the labour market following a recent spell of "solid job gains and declining unemployment". The overall view was that the economy continues to expand "moderately" and there is a very good chance of inflation rising from around 0% to 2% "in the medium term".

One very subtle, but significant, change was Janet Yellen's use of the word 'some' in her sentence, “it will be appropriate to raise the target range for the federal funds rate when it has seen 'some' further improvement in the labour market". This hints towards the idea that we may only be a few decent labour reports away from having a majority voting in favour of tighter monetary policy. Prior to the next FOMC statement in September, we have two payroll readings, so we have still been left with the possibility of a September lift off, especially if these figures both print above 200k and we see better than expected earnings reports. One thing is for sure, we are getting closer, and fundamentals will now be watched more closely than ever.