GBP/USD – Pound Posts Slight Gains To Start Off Week

GBP/USD has edged higher in Monday trading, as the pair trades in the mid-1.63 range in the North American session. In economic news, it’s a quiet start to the week, with no British releases. Over in the US, Revised UoM Consumer Sentiment climbed to 82.5 points, slightly off the estimate of 82.9 points.

The markets are still buzzing after last week’s announcement by the Federal Reserve that it would begin tapering its QE program by $10 billion a month, commencing in January. This will reduce the Fed’s asset purchases to $75 billion every month, comprised of $40 billion in Treasuries and $35 billion in mortgage bonds. The announcement came as somewhat of a surprise, as most analysts had expected the Fed to hold off on any QE reductions until early next year.

In its dramatic tapering announcement, the Federal Reserve was careful to separate tapering from rate hike expectations. Fed chairman Bernard Bernanke stated that interest rates are likely to remain low even after the unemployment rate drops below 6.5%. Previously, the Fed had stated that it would start to consider rate increases when unemployment fell below this level. Bottom line? With the unemployment rate at 7.0%, it could be a while before we see higher interest rates in the US.

Overshadowed by the Fed’s bombshell announcement, a two-year, bipartisan budget agreement is sailing through Congress. The deal was overwhelmingly approved in the House of Representatives last week and the Senate followed suit on Wednesday, passing the measure by a vote of 64-36. The bill will now go the President Obama for his signature before becoming law. The agreement sets limits on government spending for two years and reduces the deficit by a modest $23 billion. Democrats and Republicans both had criticism of the proposal, but there is general agreement in Washington that the compromise reached is a positive step which removes the threat of a shutdown which paralyzed the government in October for 16 days.

Last week ended on a sour note for British releases, as the Current Account deficit jumped in November to -20.7 billion pounds, up from -13.0 billion a month earlier. This was much higher than the estimate of -13.8 billion. Current Account is closely linked to currency demand, as a larger deficit means a lower demand for British pounds by foreigners for domestic transactions.

GBP/USD for Monday, December 23, 2013

GBP/USD December 23 at 16:10 GMT

GBP/USD 1.6352 H: 1.6375 L: 1.6329

GBP/USD Technical

• GBP/USD has edged higher on Monday. The pair has touched a high of 1.6375 early in the European session.
• The round number of 1.6300 continues to provide support. This is followed by support at 1.6231.
• On the upside, the pair is facing resistance at 1.6476. The next resistance line is at 1.6600, which has not been tested since August 2011.
• Current range: 1.6300 to 1.6476

Further levels in both directions:

• Below: 1.6300, 1.6231, 1.6125, 1.6000 and 1.5893
• Above: 1.6476, 1.66, 1.6705 and 1.6964

OANDA’s Open Positions Ratio

Short positions continue to dominate the GBP ratio, reflecting a trader bias towards the US dollar posting gains at the expense of the pound.

The pound has posted slight gains in Monday trading. With no major releases out of the US today, we could see limited movement from GBP/USD during the North American session.

GBP/USD Fundamentals

• 13:30 US Core PCE Price Index. Estimate 0.1%. Actual 0.1%.
• 13:30 US Personal Spending. Estimate 0.5%. Actual 0.5%.
• 13:30 US Personal Income. Estimate 0.4%. Actual 0.2%.
• 14:55 US Revised UoM Consumer Sentiment. Estimate 82.9 points. Actual 82.5 points.
• 14:55 US Revised UoM Consumer Inflation Expectations. Actual 3.0%.

*Key releases are highlighted in bold

*All release times are GMT

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