Mortgage Approvals cause Sterling spike
Yesterday saw the release of UK mortgage approvals data for July which came in above expectations, this was coupled with poor building approvals from down under. Worryingly however UK house prices have fallen and may continue to do so should inflation remain at high levels and average wage growth continues to lag behind.
The fall in building permit figures is significant down under as in order for the Reserve Bank of Australia (RBA) to justify a hike in interest rates there needs growth in this area.
Iron Ore is Australia’s main export, in high demand from Australia’s biggest trading partner, China. We have seen rapid rises in iron or of late which has benefited the Aussie. However, yesterday saw a small decline and this was another catalyst for Australian Dollar weakness.
Despite this positive data from the UK and negatives from Australia, I am doubtful Sterling’s rally will continue. There are two main factors that need to be addressed in order for Sterling strengthen significantly. We need clarification on Brexit and a stable government.
Political uncertainty historically weakens the currency in question. There are currently a growing number of conservative MPs putting forward a vote of no confidence in Theresa May. She either needs support to be ousted and replaced quickly if the pound has any chance of significant gains.
The white papers that are being released outlining the UK’s aims in negotiations to leave the EU are only documenting small issues at present and none so far are significant enough to move the markets. The big issues on trade and immigration need to be addressed to provide more clarity to investors.
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