2014.06.2608:16:00UTC+00Pound Extends Rise As BoE Tightens Mortgage Lending Rules To Curb Housing Risks

The pound continued its strength against the other major currencies in European deals on Thursday, as the Bank of England introduced measures to cool the housing market by tightening mortgage lending rules.

The bank does not believe that household indebtedness poses an imminent threat to stability, BoE said in its Financial Stability Report. But it is prudent to insure against the risk of a marked loosening in underwriting standards and a further significant rise in highly indebted households.

At higher levels of indebtedness, households are more likely to encounter payment difficulties in the face of shocks to income and interest rates. This could pose direct risks to the resilience of the UK banking system, and indirect risks via its impact on economic stability.

The Financial Policy Committee of BoE recommended that mortgage lenders should limit the proportion of mortgages at loan to income multiples of 4.5 and above to no more than 15 percent of their new mortgages.

Further, the FPC said mortgage lenders should apply an interest rate stress test that assess whether borrowers could still afford their mortgages if, the bank rate were to be 3 percent points higher than the prevailing rate during first five years of the loan.

Investor sentiment rose as weak U.S. GDP data raised bets that the Federal Reserve will keep interest rates lower for longer than initially thought. Given the weather-related impact on U.S data earlier in the year, investors waited for reports on weekly jobless claims and personal income and spending due out later in the day for further clues on the economy's strength.

The pound climbed to a 2-day high of 173.31 against the yen, after having fallen to near a 2-week low of 172.69 at 3:15 am ET. If the pound extends advance, 174.00 is seen as next its possible resistance level. The pound-yen pair ended deals at 172.95 on yesterday.

The pound recovered from an early low of 1.5149 against the franc, rising to a 2-day high of 1.5227. On the upside, the pound may possibly find resistance around the 1.53 zone. The pound-franc pair was worth 1.5152 when it ended deals on Wednesday.

The pound appreciated by 0.4 percent to hit a 3-day high of 1.7034 against the greenback, off early low of 1.6970. Next key upside target for the pound lies around the 1.715 mark. At Wednesday's close, the pair was valued at 1.6982.

The pound advanced to 0.7989 against the euro, its highest since June 24, and was up 0.5 percent from an early low of 0.8031. Continuation of uptrend may take pound to a resistance around the 0.79 mark. The euro-pound pair finished Wednesday's deals at 0.8023.

Euro area's leading index, measuring perceptions on future economic conditions, increased in May after declining in April, results of a survey by the Conference Board revealed today.

The Conference Board Leading Economic Index rose 0.3 percent monthly to 111.7 in May. This reversed the 0.2 percent decline in April.