GBP/USD plunges amid continuing support for the US dollar, after Fed’s tapering decision

The sterling declined against the US dollar as investors moved their focus on the release of U.S. economic growth data later in the day, while Feds decision to start tapering its stimulus program, continued to support the US currency. Meanwhile, a string of mixed data was released in the UK.

Having hit a session low at 1.6319 at 08:40 GMT, GBP/USD traded at 1.6341 at 12:49 GMT, losing 0.20% for the day. On December 18th, the pair touched 1.6485, the highest level since August 23rd 2011. Support was likely to be received at December 18th low, 1.6273, while resistance was to be encountered at December 19th high, 1.6396.

The sterling was supported after the UK National Statistics Office reported the final nations gross domestic product for the three months ended September rose 0.8%, compared to the second quarter, in line with preliminary estimates in November and matching analysts projections of 0.8% increase. The final GDP accelerated to an annual rate of 1.9% in the third quarter, compared to the same quarter a year ago, up from 1.5%, initially estimated in November. Analysts had expected an increase of 1.5% in GDP in Q3.

However, the British currency was pressured by a widening current account deficit and increasing Public Sector Net Borrowing (PSNB).

A separate report showed the current account deficit widened to 20.7 billion pounds in Q3, from 6.2 billion pounds in the second quarter, while analysts projected that the current account deficit will widen to mere 13.9 billion pounds.

Another report by the UK National Statistics Office showed the PSNB in the UK increased by 14.8 billion pounds in November, beating analysts expectations for a 13.4 billion pounds increase, after a revised value of 7.4 billion from 6.4 billion in October.

Meanwhile, the Federal Reserve announced a plan to reduce the pace of its monthly asset purchases to $75 billion from $85 billion, on its two-day policy meeting, concluded on Wednesday.

Fed Chairman Ben Bernanke announced that the central bank purchases will be divided between $40 billion in Treasuries and $35 billion in mortgage bonds starting from the beginning of 2014.

The Federal Reserve Bank decided also to keep its benchmark interest range unchanged at 0.00% to 0.25%. The central bank reassured that the benchmark rate will likely stay low, saying in its statement that “it likely will be appropriate to maintain the current target range for the federal funds rate well past the time that the unemployment rate declines below 6.5% percent, especially if projected inflation continues to run below the Committee’s 2% longer-run goal”.

The greenback was pressured yesterday after a report by the US Department of Labor revealed the number of people, who filed for unemployment benefits for the week ended December 14th, increased to 379 000 from 369 000 the previous week. Analysts projected that the jobless claims will lower to 332 000.

A report by the National Association of Realtors, added pressure on the greenback, showing that home resales fell for a third straight month to a one-year low in November. Existing home sales slid to 4.9 million, trailing projections for a drop to 5.03 million from October’s 5.12 million used homes sold.

Market players are now awaiting a confirmation of the US third quarter growth, due later today. The final Q3 Gross Domestic Product is expected to stand at 3.6%, confirming the revised reading. Personal Consumption Expenditures are projected to have risen by an annualized 1.4% in the three months through September, while the core value will likely post at a 1.5% increase, matching the previous quarter.

Elsewhere, having hit a session high at 104.59 at 06:00 GMT, USD/JPY traded at 104.47 at 08:39 GMT, adding 0.22% for the day. The pair was set for an eight straight week of advances. Support was likely to be received at December 19th low, 103.79, while resistance was to be encountered at October 2nd 2008 high, 104.93. is a financial media specialized in providing daily news and education covering Forex, equities and commodities. Our academies for traders cover Forex, Price Action and Social Trading.

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