GBP/USD trades in proximity to ten-month highs on Carney’s testimony

The sterling advanced for a third consecutive day versus the US dollar, touching the highest 10-month level on Mark Carneys testimony.

GBP/USD reached a session high at 1.6353 at 11:20 GMT, which is the highest level since January 2nd. Support was likely to be encountered at November 27th low, 1.6198, while resistance was to be met at January 2nd high, 1.6381.

The Governor of Bank of England (BoE) Mark Carney announced earlier on Thursday that the central bank will end incentives for mortgage lending in an attempt to deviate threats to financial stability from the housing market. Carney said that from 2014 allowances under the central banks Funding for Lending Scheme (FLS) will be available to business lending and no longer available for home loans.

Regulators also decided to end a measure, which didnt require banks to hold capital against mortgages granted under the program. According to Carney, the FLS will be re-directed , where it is needed the most, namely to supply credits to small business, after having reached its target on the housing market.

Lee Hardman, a currency strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London, cited by Bloomberg, said: “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. At this point, the market seem to be taking this as good news for the pound.”

On Thursday, UK government sold gilts at an average of 3.609%, compared to 3.743% at September 10th prior auction. The bonds were with a 30-year maturity, due in January 2044.
According to Bloomberg World Bond Indexes, UK bonds investors suffered a 3.2% loss this year through yesterday.

Speculations that the strengthening UK economy will force the BoE to increase its benchmark interest rate helped the pound to gain 7.2% in the last six months.

Yesterday, revised data showed that the UK economy grew in the third quarter, as initially expected. In a report by the Office for National Statistics, the Gross Domestic Product rose by seasonally adjusted 0.8% in the third quarter, which is in line with the preliminary estimates and also retained the pace shown during the preceding quarter. On annual basis, UK economy expanded 1.5% in Q3 compared to the same period last year, which again met analysts’ forecasts.

The British economy was counting on the consumers’ spending during the third quarter. The growth of the economy in the third quarter was supported by the fastest pace of growth in consumer spending in the past three years. Consumer spending rose 0.8% in the third quarter. However, Bank of England is sceptical about the prospects of a stable growth, based only on consumer spending given the lower pace of personal income growth.

However, the above mentioned figure may deepen concerns that growth may not demonstrate resiliency, as nation’s exports dropped 2.4% during Q3, or the largest decline in the past two years. This accompanied by rising imports shaved UK growth by 0.9% during the same period, according to the report.

Meanwhile, the US dollar gained appeal yesterday after a report by Thomson Reuters and the University of Michigan revealed that the final reading of the gauge of consumer sentiment in the United States climbed to 75.1 in November from a final value of 73.2 in October. Expectations pointed an increase to 73.1 in November compared to the preliminary reading of 72.0, published on November 8th, which was also the lowest point since December 2011.

Additionally, also yesterday the Department of Labor reported that the number of initial jobless claims in the US, an indicator for lay-offs in companies, dropped by 10 000 to reach 316 000 during the week ending on November 23rd 2013, confounding preliminary estimates pointing that claims will climb to 330 000. The number of claims in the preceding week has been revised up to 326 000 from 323 000 previously.

Today trading volumes are expected to remain light, as markets in the United States are closed for Thanksgiving holiday.

Elsewhere, having reached a fresh one-month high at 1.3618 at 9:00 GMT today, EUR/USD moved below the psychological level of 1.3600 to trade at 1.3592 at 12:34 GMT, gaining 0.10% for the day. NZD/USD touched a session high at 0.8178 at 5:05 GMT, after which consolidation followed at 0.8154, gaining 0.07% for the day. Support was likely to be found at November 27th low, 0.8116, while resistance was to be encountered at November 27th high, 0.8212.