The pound declined to the weakest level in more than a week against the US dollar, after the Federal Reserve Bank announced that it will scale back its monetary stimulus by $10 billion at its two-day policy meeting concluded yesterday.
GBP/USD reached a session low at 1.6445 at 10:07 GMT, after which consolidation followed at 1.6458, losing 0.64% for the day. Support was likely to be received at January 21 st low, 1.6400, while resistance was to be encountered at January 29th high, 1.6606. On January 24th, GBP/USD touched 1.6668, the pair’s highest since May 2nd 2011.
On Wednesday, the Federal Open Market Committee announced that it will reduce the pace of its monthly bond purchases to $65 billion from the current $75 billion. The FOMC cited improvements in the labor market and the pace of the economic growth, which started accelerating in recent quarters, in consonance with its plan to gradually withdraw from bank’s unprecedented accommodative policy. The central bank has undertaken three rounds of bond purchases since 2008, known as quantitative-easing stimulus strategy.
The Fed also maintained its benchmark interest rate unchanged at 0.00%-0.25% in line with expectations.
The central bank will probably continue to pare stimulus by $10 billion at each policy meeting before exiting the program in December, according to a Bloomberg News survey of 41 economists, conducted on January 10th.
At the same time, US preliminary Gross Domestic Product probably increased at an annualized rate of 3.2% during the fourth quarter of 2013, according to the median estimate of economists, following the 4.1% gain recorded in Q3. The official figure is scheduled to be released at 13:30 GMT today. Better than anticipated result will certainly heighten the appeal of the US dollar.
Personal consumption expenditures in the United States probably rose at an annualized pace of 3.7% in Q4, after gaining 2.0% in the preceding quarter.
Meanwhile, the pound was supported after BoEs report showed the mortgage approvals reached a 7-year high and UK house prices rose to the highest level since April 2008.
“The pound is weaker against the dollar but that’s more a story of broad dollar strength after the FOMC meeting last night,” said Lee Hardman, a foreign-exchange strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London, cited by Bloomberg. “We still have a positive outlook for the pound and further strengthening ahead driven by the ongoing robust performance of the economy.”
Bank of England released a report that showed the number of mortgage approvals increased to a 7-year high of 71 638 in December, after an upward revised figure of 70 820 in the previous month. However, analysts had expected that the mortgage approvals will rise to 72 900 and in addition the indicator has limited influence on the exchange rate of the pound as the BBA mortgage approvals account for over 60% of the overall mortgage approvals. The BBA data is released few days prior to BoEs mortgage approvals data.
A separate report by the central bank revealed the net consumer credit, which includes personal loans, overdrafts, and credit card lending rose by 0.6 billion pounds in December, after Novembers reading was upward revised to 0.7 billion pounds from earlier estimates of 0.6 billion pounds increase. According to the median analyst forecast the index should have increased to 0.7 billion pounds last month.
A report by the UK Nationwide Building Society yesterday showed the average cost of a home surged by 0.7% in January, reaching 176 491 UK pounds, the most since April 2008. Analysts had predicted that home prices will rise 0.6%. Prices soared 8.8% in January, compared to the same period a year ago, marking the biggest annual advance since May 2010.
Elsewhere, EUR/USD touched a session low at 1.3597 at 09:30 GMT, after which consolidation followed at 1.3608, losing 0.41% for the day. Support was likely to be received at January 23rd low, 1.3529, while resistance was to be met at January 29th high, 1.3685.