GBP/USD off more than two-year highs amid Fed tapering decision

The pound rebounded from more than-two year highs against the US dollar amid Feds decision to trim its monthly asset purchases at the policy meeting on Wednesday.

Having reached a session low at 1.6366 at 02:15 GMT, GBP/USD traded at 1.6369 at 10:27 GMT, losing 0.13% on a daily basis. Support was likely to be received at December 18th low, 1.6273, while resistance was to be encountered at December 18th high, 1.6485, also the pairs highest level since August 23rd 2011.

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.

The announcement supported the greenback as the Fed stimulus program tended to devalue the US currency.

“Reflecting cumulative progress and an improved outlook for the job market, the committee decided today to modestly reduce the monthly pace at which it is adding to the longer-term securities on its balance sheet,” Bernanke said at a press conference in Washington after a meeting of the Federal Open Market Committee, cited by Bloomberg.

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”.

Yesterday, official data showed the number of building permits issues in the U.S. fell less-than-expected in November, remaining near the highest level since January 2008, while at the same time US housing starts rose at a faster-than-expected pace in November.

In a report the Census Bureau said that the number of building permits issued last month declined by 3.1% to a seasonally adjusted 1.01 million from 1.04 million units in the previous month. Analysts projected a 4.7% decline to 0.99 million units in November.

The report revealed that US housing starts rose by 22.7% in November, hitting a seasonally adjusted 1.1 million from October’s 0.89 million. Analysts’ forecast pointed an increase to 0.95 million.

Meanwhile, data showed on Thursday that UK retail sales grew in line with expectations in November, adding to the steadily building-up positive sentiment for the UK economy outlook.

The UK National Statistics Office reported that retail sales rose by a seasonally adjusted 0.3% in November, in line with preliminary estimates. In October, retail sales were downwardly revised to a 0.9% drop from a previously reported 0.7% decline. Retail sales for the 12 months ending November, increased at an annualized rate of 2%, short of analysts expectations for a 2.3% gain, but higher than Octobers 1.8% rate. Core retail sales, which exclude automobiles, rose 0.4% in November, above analysts estimates for a 0.3% increase. In October the core retail sales declined 0.7%.

On Wednesday, the UK National Statistics Office reported the unemployment rate dropped to 7.4% in the three months through October, the lowest since June 2009, beating analysts’ projections of a reading of 7.6%. A separate report showed that the jobless claims fell 36 700 in November, while projections pointed a 35 000 decline. In October claims for unemployment benefits dropped 41 700.

Bank of England minutes, released yesterday, showed that the Monetary Policy Committee, which consists of 9 members, decided unanimously to keep the main interest rate at 0.5% and leave the asset-purchases at 375 billion pounds on their December 5th policy meeting.

The BoJ policy makers have pledged to keep borrowing costs low until unemployment reaches 7% and the economy stabilizes enough to withstand higher interest rates.

“The recovery has some way to run before it would be appropriate to consider adjusting the exceptional level of monetary stimulus. It is welcome that the economy is growing again, but a return to growth is not yet a return to normality, said yesterday the BoE’s Governor Mark Carney to lawmakers at the House of Lords Economic Affairs Committee in London, cited by Bloomberg.