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British Pound Pares Gains, but Support is Still In-tact

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British Pound Pares Gains, but Support is Still In-tact

The British pound was unable to extend its rally for a third day, falling below the 1.64 handle amid a dearth of economic data. The best performing development-nation currency of the past six months is expected to remain supported amid speculation the Federal Reserve won’t pare back asset purchases next week.

Pound sterling hit a session low of 1.6344 US in Europe before consolidating closer to the 1.64 handle in the mid-day North American session. The GBPUSD pair is trading on a loss of 57 pips amid news US Congressional leaders reached a two-year budget deal, staving off another government shutdown in the new-year. Democrats and Republicans agreed to fix federal spending at $1.012 trillion, giving Congress the first bipartisan budget accord in nearly three decades. The current deal funds government through January 2014, and raise the debt limit until February 7.

The pound fell through three support levels in Europe before a broad consolidation trend brought the GBPUSD pair back toward the 1.64 handle. Technical resistance is ascending at 1.6482, 1.6523 and 1.6554.

The pound’s losses are likely to remain limited as economic recovery in the UK continues to deepen. It is widely believed the Bank of England will become the first major central bank to raise interest rates. The BOE has brought forward its guidance on unemployment several times. According to policymakers, the UK’s unemployment rate could reach its threshold as early as next year.

In the United States, stronger than forecasted job creation has raised expectations the Federal Reserve could unwind record stimulus sooner than expected. According to a recent survey conducted by Bloomberg News, around one-third of economists believe a small taper could occur at the December meetings, which are scheduled to take place next week. The Federal Reserve’s balance sheet has swelled to nearly $4 trillion.

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