GBP to USD Exchange Rate edges closer to five year high as 1.70 level is breached

The Pound once again breached the psychologically important 1.70 barrier on Thursday as the Pound was supported ahead of tomorrow’s UK gross domestic product data release. The US currency continued to be weighed upon by yesterday’s worse-than-expected growth figures.

Sterling rallied against all of its most traded peers after the Bank of England announced measures to avert a potentially harmful housing boom. The plans outlined by BoE Governor Mark Carney were not seen as being harmful to the UK economic recovery and as such the UK currency found support.

The measures outlined included plans to prevent lenders from lending more than 15% of residential mortgages at more than 4.5 times the borrower’s income. The measure was not likely to affect first time buyers too much and takes a step towards ensuring that banks do not grant loans that consumers will struggle or be unable to pay.

The main recommendations outlined were:
– A Treasury pledge that bans anyone applying for a loan through the governments Help to Buy scheme borrowing at more than 4.5 times their income.
– A limit on risky lending by introducing a 15% cap on mortgages that the banks can give to people who want to borrow more than 4.5 times their income.
– Applicants for mortgages will have to pass an affordability test to prove that they can afford to pay back their loans even if interest rates reach 3%.

The proposed measures are designed to take some of the heat out of the UK property market. Mr Carney warned earlier in the year that the property market was proving to be the biggest threat to the economic recovery. Investors were happy with the measures as they did not see them derailing the UK’s strong economic recovery.

The GBP to USD exchange rate is trading around 1.7009

“They will prevent lending getting too far ahead of income growth and they’ll prevent a slide into riskier lending and higher indebtedness that could undermine the economic expansion over the medium term,” Said Mr Carney in a press conference.

The measures did little to reduce expectations for an interest rate rise early next year.

The US Dollar meanwhile was continuing to be weighed upon by yesterday’s worse-than-forecast GDP data.

The ‘Greenback’ managed to find some support however from today’s domestic data releases which showed that the number of citizens filing for initial unemployment benefit fell by 2,000 to 312,000 in the week ending on June 21. That was down from the previous week’s figure of 314,000. Economists had been expecting the number of claimants to drop by 4,000 to 310,000.

Another report came in below expectations as it showed that personal spending by US citizens increased by 0.2% last month, below the forecast increase of 0.4%. Despite that the ‘Greenback’ received some support as the report also showed that inflation is edging closer to the Federal Reserve’s target of 2%.

Demand for safe havens was also offering some support as investors remain concerned over the conflict in Iraq and the situation in Ukraine.

Islamic militants from the Islamic State in Iraq and the Levant (ISIL) terrorist group captured a town just 80 miles from Baghdad, raising fears that a battle for the capital is not far off.