GBP/USD Falls as Indicators Boost USD While Carney Scolds Banks

Trading was back in full force after the United States Memorial Day and United Kingdom Spring Bank Holiday. There was no UK data releases expected on Tuesday and the highlight was the speech by the Bank of England’s Governor at the Inclusive Capital Initiative. In the US the main releases were USD positive.

The US Purchasing Managers Index (PMI) came in above expectations at 58.8. This figure also beat last months print of 55. Consumer Confidence in May also surprised to the upside. The Manufacturing indicators were mixed with the Richmond Fed beating expectations while the Dallas Fed numbers under performed.

The GBP/USD was falling from 1.6862 levels and after breaking through the 1.68 support levels, only to get a small boost to rise above it after Carney’s speech. The main driver on the fundamental side was the BBA mortgage data that could signal further restriction from the Central Bank to curb the demand for mortgages.

Forex Rate Graph Tuesday, May 27, 2014

Bank of England Governor Mark Carney focused on a topic that was introduced earlier today by head of the International Monetary Fund Christine Lagarde. Carney warned participants about the damage done to the financial system by corruption and scandals. The fact that the BOE has also been involved makes the matter more pressing for Mr. Carney to address. Coming from the IMF the comments made headlines, but lacked the conviction of real change. Having a major central bank chief address the issue gives credibility to the trust rebuilding effort.

The fact that Mark Carney heads the G20 Financial Stability Board gives banks a heads up into what to expect regarding global regulation going forward.

Weekly Forex Rate Graph Tuesday, May 27, 2014

The economic fundamentals in the UK continue to improve under Mr Carney’s watch, but he has issued warning about the potential risks a housing collapse could bring. The mortgage figures released today point to some of the symptoms of an unhealthy rise. Overall mortgage amounts continue to rise reaching record highs, while the number of mortgages continue to decrease. Less people are taking higher mortgages. The BOE could introduce new measures to try and cool the housing market before it overheats.

May 28 FX Calendar
* UK Consumer Price Index
* German Unemployment
* Japan Retail Trade Data

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza