GBP/USD advances as UK house prices soar to highest since 2008

The pound advanced against the US dollar, after a report revealed UK house prices increased for a 13th straight month, reaching the highest level since April 2008.

GBP/USD reached a session high at 1.6606, after which consolidation followed at 1.6595, adding 0.1% for the day. Support was likely to be received at January 28th low, 1.6538, while resistance was to be encountered at January 28th high, 1.6626. On January 24th, GBP/USD touched 1.6668, the pair’s highest since May 2nd 2011.

A report by the UK Nationwide Building Society showed the average cost of a home surged by 0.7% in January, reaching 176 491 UK pounds, the most since April 2008. Analysts had predicted that home prices will rise 0.6%. Prices soared 8.8% in January, compared to the same period a year ago, marking the biggest annual advance since May 2010.

“The housing market is continuing to gather momentum on the back of further solid gains in employment, record-low mortgage rates and rising confidence,” said Robert Gardner, chief economist at Nationwide, cited by Bloomberg.

A report by the UK Office for National Statistics revealed yesterday that the British GDP grew 0.7% in Q4, after a 0.8% increase in the third quarter, capping the best year since 2007. The British GDP increased in line with analysts estimates, but combined with todays UK rising home prices raised concerns that a bubble may be forming.

Data revealed on January 22nd, that the nation’s unemployment fell more-than-projected, reaching 7.1% in the three months to November, just above the 7% threshold that the Monetary Policy Committee (MPC) pledged to use as a benchmark for raising the record-low benchmark interest rate. According to the UK Office for National Statistics, that was the largest decline in unemployment since 1997 and the lowest level since May 2009.

Citigroup Inc. forecast last week that Bank of England will increase its record-low 0.5% benchmark interest rate in Q4 of 2014.

According to Bloomberg Correlation-Weighted Indexes, the pound was the best performer of 10 developed-nation currencies in 2013, as it strengthened 9.4% in the previous year, while at the same time the US dollar added 3.9%.

Meanwhile, greenback’s demand continued to be underpinned by expectations for stimulus cuts at FOMC’s two-day meeting, which concludes later today.

The greenback was pressured after US Commerce Department reported yesterday that durable goods orders plunged 4.3% in December, confounding analysts’ expectations for a 1.8% increase. Bookings for durable goods or those meant to last at least three years were downward revised in November to a 2.6% advance from a previously estimated 3.4% gain.

Core durable goods orders or those excluding the volatile transportation items, declined 1.6% in December, the largest slump since March, defying analysts’ forecasts for a 0.5% advance. Orders for core capital goods, excluding defense, fell 3.7%% last month, confounding projections for a 1% gain and after a downward revised increase of 2.7% in November.

However, data showed that the consumer confidence rose for a second month, reaching 80.7 in January, the highest since August, exceeding analysts’ forecasts of an increase to 78.0. In November the consumer confidence stood at 77.5.

The downbeat reports on the durable goods orders did little to alter the overall market expectations for stimulus cuts at FOMC’s two-day meeting, which concludes later today.

According to the median estimates by experts in a survey by Bloomberg conducted on January 10th, the Federal Open Market Committee will probably reduce the monthly pace of bond purchases from the current 75 billion USD by increments of 10 billion USD at every policy meeting to exit the program this year.

Elsewhere, AUD/USD reached a session low at 0.8750 at 09:15 GMT, after which consolidation followed at 0.8764, losing 0.16% for the day. Support was likely to be received at January 28th low, 0.8730, while resistance was to be encountered at January 23rd high, 0.8845.