British Pound Speculative Positioning Points Toward Rebound

The British pound failed in its early-morning test of 1.8700 as UK housing data continues to disappoint. Indeed, Rightmove home prices fell 4.8 percent in August from a year earlier, marking the sharpest decline since record-keeping began in 2002.

Property values in the UK have been falling rather steadily throughout the year, as the start of the credit crunch in 2007 triggered an increase in mortgage rates and more stringent lending standards. Much like the US, the decline in UK home prices is impacting financial institutions, as assets related to mortgages rapidly fall in value. This is much of the reason why Bank of England Monetary Policy Committee members like David Blanchflower continue to vote for rate cuts, but with consumer prices accelerating faster by the month, the MPC will be hesitant to ignore their mandate to maintain price stability. As a result, the BOE is unlikely to cut rates before year-end. How will this impact the British pound? Well, at this point, the currency is simply oversold. Looking at the most recent COT positioning report, the British pound index is at a bearish extreme, indicating potential for a GBP/USD low to form. Consequently, [B]while we could continue to see the pair consolidate above Friday’s lows of 1.8512, [/B][B]GBP/USD is due for a rebound toward 1.8900[/B][B].[/B]