The GBP/USD exchange rate has been rising sharply since mid-march 2019 when it plummeted to 1.15. As of 01 September 2020, the pair is trading at a nine-month high of 1.34. The rise is attributable to the general sell-off of the greenback as well as many other contributing factors.
UK Interest Rates & PMI data:
The Bank of England’s intention to keep the interest rate above 0% is helping to push the British pound higher. The UK’s economic data from July to August also show an accelerated economic recovery, which is helping the pound gaining ground against the greenback. Also, the UK PMI manufacturing index rose to 55.2 in August, the highest level since January 2018, as compared to 53.3 in July.
Strong UK Mortgage Data:
Furthermore, the British pound gained strength and climbed to its highest level since December last year following upbeat mortgage data from the UK. In June, the number of mortgage approvals jumped from 39,900 in June to 66,300 in July, showing an increase of 26,400 approvals from June. Economists had forecasted the mortgage figure of 54,800 for July. The rise in approvals came on the back of stamp duty cuts announced to cushion the property market from the adverse effects of the coronavirus pandemic.
Federal Reserve’s chairman comments on inflation:
Moreover, chairman of the Federal Reserve, Jerome Powell, hinted at keeping the inflation above 2%, which implies that the interest rates will remain at the lowest levels for years. Consequently, the US dollar dropped against the British pound and other key currencies.
Brexit Negotiations and taxation concerns:
However, the stalemate in Brexit negotiations and concerns about higher corporate and income taxes might keep a lid on the rising pound. As per the news reports, Prime Minister Boris Johnson is not hopeful of striking a deal with the EU and blames the EU for not compromising on contentious issues.
The dollar index and future outlook:
The dollar index (DXY), however, is expected to find support at 92-level where it is currently trading, following a strong US manufacturing data report for August. The ISM PMI manufacturing climbed to 56 in August, the highest figure since January 2019. This reading shows higher expansion in the manufacturing sector as compared to the expected 54.5 reading.