GBP/USD retreats from 2-1/2 year highs after UK growth data

The pound retreated from 2-1/2-year highs against the US dollar after a report showed the UK economy in the fourth quarter expanded less than some analysts had forecast.

GBP/USD hit a session low at 1.6538 at 10:15 GMT, after which consolidation followed at 1.6567, losing 0.10% on a daily basis. Support was likely to be received at January 27th low, 1.6480, while resistance was to be encountered at January 24th high, 1.6668, also the pair’s highest since May 2nd 2011, when GBP/USD touched 1.6739.

A report by the UK Office for National Statistics revealed the British GDP grew 0.7% in Q4, after a 0.8% increase in the third quarter,matching the median analyst forecast in a Bloomberg News survey. However, estimates ranged from 0.3% to 1%, with almost half of the 39 economists surveyed forecasting growth of more than 0.7%.

On year-over-year basis, the UK economy expanded 2.8% in the last three months of 2013, in line with the analysts forecasts.

“Some market participants were sensing risks to the upside, and so the in-line print disappointed,” said Neil Jones, head of European hedge-fund sales at Mizuho Bank Ltd. in London, cited by Bloomberg. “It’s still a good print and I would expect cable to recover in the longer term,” he said, referring to the pound-dollar exchange rate.

Data revealed on January 22nd, that the nation’s unemployment fell more-than-projected, reaching 7.1% in the three months to November, just above the 7% threshold that the Monetary Policy Committee (MPC) pledged to use as a benchmark for raising the record-low benchmark interest rate. According to the UK Office for National Statistics, that was the largest decline in unemployment since 1997 and the lowest level since May 2009.

A report by Citigroup Inc. last week forecast Bank of England will increase its record-low 0.5% benchmark interest rate in Q4 of 2014.

According to Bloomberg Correlation-Weighted Indexes, the pound was the best performer of 10 developed-nation currencies in 2013, as it strengthened 9.4% in the previous year, while at the same time the US dollar added 3.9%.

Meanwhile, greenback’s demand continued to be underpinned by expectations for stimulus cuts at the upcoming FOMC’s meeting this week, which is scheduled to be held on January 28-29th.

The Federal Open Market Committee (FOMC) will probably reduce the monthly pace of bond purchases from the current 75 billion USD by increments of 10 billion USD at every policy meeting to exit the program this year, according to the median estimates by experts in a survey by Bloomberg conducted on January 10th.

A report by the US Census Bureau revealed the new home sales in the country declined by 7% to the annualized level of 0.414 million units in December, after November’s downward revised figure of 0.445 million units. Analysts had anticipated that new home sales will reach 0.455 million units.

Data from the same report showed the recovery of the US housing market was pressured by the higher home values and the increasing mortgage rates. The average value of a new home was 270 200 US dollars, which is up 4.6% on year-over-year basis and is the strongest level since April. The worse-than-expected current housing market conditions in the US pressured greenback’s demand.

However, the downbeat data did little to change the overall market expectations for stimulus cuts at the upcoming FOMC’s meeting this week.

Elsewhere, EUR/USD touched a daily low at 1.3657, after which consolidation followed at 1.3660, losing 0.1% for the day. Support was likely to be received at January 27th low, 1.3654, while resistance was to be met at January 27th high, 1.3717.