Here are a range of factors supporting further GBP strength and what may call it into question.

A strong housing sector

Andy Haldane said that the UK housing sector was ‘on fire’. In fact, the UK’s Nationwide house price index has printed a 1.8% increase in May on top of the 2.1% jump in April. The yearly rate has sped up to 10.9% year over year vs 7.1% in April and 6.4% in April.

Why has the UK housing market exploded higher?

A number of complementary factors have come together all at once for the UK”s housing sector. Very low-interest rates, a cut in the UK’s stamp duty tax, and pent-up savings of around £150 billion have all played a part in supporting the housing market.

Why will the BoE worry about rising house prices?

Well, it stokes inflation fears. The extra demand in the housing sector is impacting the valuation of people’s homes which have been steadily rising alongside the demand. One of the easier ways to control the housing market is to raise interest rates. Remember how the RBNZ was given a mandate by the New Zealand Gov’t to include house prices in their policy mandate? The immediate reaction at the time was NZD strength and NZD 10 year yields moving higher as the market rightly read at the time that this prevented the RBNZ from using negative rates. That mandate was eventually removed from the RBNZ as they would have been working behind the scenes saying thanks for the hospital pass (a hospital pass is a pass in the game of rugby where you pass the ball so badly that you set your teammate up to be steamrolled). However, the bottom line is that the BoE may step in and signal a coming rise in interest rates on Thursday. The UK Gov’t can also help by not extending the Stamp duty scheme.

Chart

UK yields on the move higher

The general recovery in the UK on vaccine optimism has kept UK gilts yields moving higher. From Jan 04 to June 08 UK yields have moved higher by 60 bps outperforming the euro, Swiss franc, and the JPY.

Chart

So, medium-term the outlook for the UK still looks good despite the recent delay to July 19 for the UK having lockdowns lifted. However, there are risks to the UK upside remain on the delta variant, a sharp rise in US yields, Scottish referendum talks, and UK trade loss in the post-Brexit world. A EURGBP short however could be a great trade heading into the BoE interest rate meeting next Thursday.

EURGBP

Learn more about HYCM

High Risk Investment Warning: Contracts for Difference (‘CFDs’) are complex financial products that are traded on margin. Trading CFDs carries a high degree of risk. It is possible to lose all your capital. These products may not be suitable for everyone and you should ensure that you understand the risks involved. Seek independent expert advice if necessary and speculate only with funds that you can afford to lose. Please think carefully whether such trading suits you, taking into consideration all the relevant circumstances as well as your personal resources. We do not recommend clients posting their entire account balance to meet margin requirements. Clients can minimise their level of exposure by requesting a change in leverage limit. For more information please refer to HYCM’s Risk Disclosure.

Feed news

Latest Forex Analysis


Latest Forex Analysis

Editors’ Picks

EUR/USD falls toward 1.1850 amid souring market mood

EUR/USD is trading closer to 1.1850, down on the day, as Monday's concerns about slower growth following the disappointing ISM Manufacturing PMI have spilled over to Tuesday. The risk-off mood, also backed by rising US covid cases, is boosting the safe-haven dollar.

EUR/USD News

GBP/USD clings to 1.39 as UK covid cases fall

GBP/USD is trading around 1.39, little changed, as UK covid cases extend their drop toward 20,000. The broader market mood is also calmer despite growth worries. 

GBP/USD News

XAU/USD continues to target $1804 and $1800 support levels

Gold is holding the lower ground, heading closer towards $1800, as traders remain cautious and refrain from placing any fresh directional bets ahead of the all-important US NFP data due this Friday.

Gold News

Bitcoin and altcoins correct before another run-up

Bitcoin price has dropped 10% since its August 1 swing high at $42,599. Ethereum price follows BTC and has shed 9% as it bounces off the $2,460 support level. Ripple price came extremely close to retesting the range high at $0.785 but is now undergoing correction.

Read more

Delta Doom is set to storm America, the dollar could emerge as top dog

"America is coming back" – these words by US President Joe Biden have sounded like a victory lap for the country's success in depressing COVID-19 cases, hospitalizations, and especially deaths. The charts are indeed impressive:

Read more

Majors

Cryptocurrencies

Signatures