Pound Advances as Carney Takes Steps to Counter Housing Bubble
This article by Anchalee Worrachate for Bloomberg may be of interest to subscribers. Here is a section:
The pound rose for a third day versus the dollar as Bank of England Governor Mark Carney said the central bank will end incentives for mortgage lending to head off threats to financial stability from the housing market.
Sterling climbed to the strongest since January against the greenback before reports tomorrow economists said will show consumer confidence improved this month and mortgage approvals rose in October. Carney said allowances under the central bank's Funding for Lending Scheme will only apply to business lending from 2014 and no longer be available for home loans. U.K. government bonds reversed a drop after the Debt Management Office sold 2.5 billion pounds ($4.09 billion) of 30-year debt.
"Sterling reacted positively to what Carney said because the perception is that the Bank of England is using macro-prudential measures to head off risk to market stability that could come from the housing market," said Lee Hardman, a currency strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. In London. "Some see that as hawkish. We have a different view, but at this point, the market seems to be taking this as good news for the pound."
The Pound was one of the earliest and largest victims of the credit crisis as it was allowed it to take the brunt of the distress caused by the financial sector's crash, in an effort to protect the wider economy from even greater pressure. The recovery of the banking sector and its effect on the relative health of London's City are likely to be non-trivial considerations when assessing the outlook for the Pound.
The FTSE 350 Banks Index has been ranging for most of this year and has returned to test the region of the 200-day MA. The Euro Stoxx Banks Index is firming in the region of the upper side of its two-year base, while the S&P 500 Banks Index continues to hold a two-year progression of higher reaction lows. The pattern of relative strength in global banking sectors should act as a tailwind for the Pound over the medium-term.
Against this background, Cable remains in a five-year base against the Dollar and is currently rallying towards the upper boundary. A sustained move above $1.70 would indicate a return to medium-term demand dominance.