The Great Britain pound rose sharply yesterday against the greenback after the release of the Rightmove House Price Index that surpassed analysts’ expectations. Furthermore, a split in the Labour Party, the UK’s official opposition, further buoyed the pound as it is considered to be the best news for the British Prime Minister Theresa May. From a low of 1.2765, the GBP/USD pair rallied to a high of 1.2945, before consolidating at 1.2897.
Strong economic data and Labour Party split boosts the pound
The latest House Price Index provided by property website Rightmove indicates that housing affordability in the UK is improving at the quickest rate in eight years. The property website reports that houses were offered for sale at prices that, were on average, 0.2% higher than the year before. It is the weakest growth since 2009 as sellers price their homes in a cautious manner.
However, Rightmove pointed out that the UK’s average annual wage growth of 3.4% was eclipsing the price demanded by sellers’ at the most rapid rate in eight years. This suggests that house affordability is growing in the UK. The Rightmove House Price Index gained 0.7% in February, after rising 0.4% in January. Notably, the annual growth rate was only 0.2%.
Commenting on the Rightmove House Price Index, Miles Shipside, Rightmove director and housing market analyst, said: “Sellers’ subdued pricing is now being outstripped by higher average wage growth, meaning that buyer affordability is on the rise at the fastest rate in nearly eight years. Buyers are also being given the leg-up by cheap mortgage rates if they can meet lenders’ criteria and lay their hands on a large enough deposit.”
As far as political developments are concerned, seven MPs have resigned from the Labour party, protesting against Jeremy Corbyn’s handling of Brexit and anti-Semitism. The MPs who have quit are Luciana Berger, Chuka Umunna, Chris Leslie, Mike Gapes, Gavin Shuker, Angela Smith, and Ann Coffey.
Notably, the MPs who have resigned are staunch opponents of Brexit and anti-Semitism. These MPs have already demanded a second Brexit referendum. Therefore, the Labour party breakup is perceived as a positive development for the currency.
Ian Austin, an outspoken critic of Jeremy Corbyn, cautioned that more MPs are considering the option of leaving the party.
Robert Howard, a currency analyst at Thomson Reuters, said: “Sterling may gain support from reports that a group of Labour MPs will announce on Monday they are leaving the party.”
Howard believes that resignations could limit Corbyn’s chances of becoming the next prime minister after the next general election.
Howard said: “The received wisdom is that GBP will tank if Corbyn is the next PM, because of Labour’s high-spending policies, so anything that lessens that risk should be good for GBP. The next election is provisionally scheduled for 2022, but Brexit developments may lead to its being held much earlier.”
Samuel Tombs, UK Economist at Pantheon Macroeconomics, said: “The Labour split is the best news Theresa May has had in months. Just look at how the SDP bolstered Thatcher. The Conservative share of the popular vote fell to 42% in 1983, from 44% in 1979. But their seat share rose to 61%, from 54%. Tory majority increased by 100.”
Therefore, the economic data and political developments favor the pound rally.
Technically, the GBP/USD pair has bounced off the support at 1.2846. The next major resistance is expected only at 1.3000 levels. Furthermore, the currency pair is trading above its 32-day moving average. The oscillator of the moving average is also in the positive region. As a result, we can expect the uptrend to continue in the short-term.
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