The pound sterling rallied as high interest rates did not discourage Britons from taking on debt.

The pound sterling continued the rally that was interrupted in early trading this year. GBP/USD made another attempt to climb above the 1.2700 threshold in Thursday's trading (4/January), following the release of superior-than-expected UK credit data. GBP/JPY also shot up by around 1.25%, while EUR/GBP struggled near a two-week low.

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People usually think twice about borrowing funds from banks when interest rates are very high. However, high interest rates have not deterred the British people from getting into debt.

BoE Consumer Credit data saw a rapid rise from 1,411 billion to 2,005 billion in November 2023. The previous consensus predicted a decline to 1,400 billion. Mortgage Approvals data also increased from 47.89k to 50.07, or more than the consensus estimate of 48.50k.

UK consumer net borrowing in November 2023 was the highest in almost seven years. This fact increased market optimism about the UK economic outlook while convincing many that the BoE will maintain high interest rates for longer than the Fed.

"UK mortgage approvals and lending data are better than expected suggesting that the market could be in danger of repeating the mistake of a year ago in pricing in too much pessimism," said Jane Foley, Head of FX Strategy at Rabobank. "The firmer data also pushes back on hopes for early and aggressive BoE rate cuts in 2024."

Another economic report from S&P Global/CIPS revealed that UK business services activity expanded further in December 2023. The UK Services PMI score jumped from 50.9 to 53.4 in the final report, or higher than the 52.7 in the preliminary report.