Outlook for GBP/USD cross during the upcoming week

The sterling declined against the US dollar on Friday, as Fed’s 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 1.6316 at 13:30 GMT on Friday, GBP/USD closed the week at 1.6329, losing 0.27% 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 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 mechanics of the dollar story are changing, the normalization of the U.S. growth story is getting attractive for global investors,” said Sebastien Galy, a New York-based senior foreign-exchange strategist at Societe Generale SA, cited by Bloomberg. Sebastien Galy added: “Investors are moving back their money to the dollar after years of selling the dollar. It’s a systemic shift that’s happening.”

On Friday, the US Bureau of Economic Analysis, released a report that showed the GDP grew at a revised 4.1% annualized rate in the third quarter, the strongest final reading since the fourth quarter of 2009 and up from preliminary estimates in November, which showed the GDP will rise 3.6% this month.

A separate report by the US Department of Commerce revealed the final Personal Consumption Expenditures for the third quarter rose to 2.0%, from preliminary estimates of 1.4% in November and up from analysts’ expectations of 1.4% increase.

The greenback was pressured on Thursday, 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.

Meanwhile, the sterling was supported after the UK National Statistics Office reported the final nation’s 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.

“We’re coming out of the recession with an already very wide deficit. Normally we would have expected the deficit to have closed up somewhat but that hasn’t been the case so it does risk the deficit widening out once again. That could be a longer-term drag for sterling.”, said Ian Stannard, head of European foreign-exchange strategy at Morgan Stanley in London, cited by Bloomberg.

GBP/USD cross may be influenced by a number of reports, scheduled for publication during next week, as follows:

On Monday (December 23rd), the United States will release reports on personal income and personal spending for November, accompanied by the core personal consumption expenditures (PCE) price index for the same month. The change in the core PCE price index in November, compared to a year ago will also be reported. The same day the University of Michigan will publish the results from its survey on consumer confidence for December.

On Tuesday (December 24th), the durable goods orders, durable goods orders excluding transportation and those excluding defense in the US will be reported for November. A separate report will probably show that new home sales contracted to 435 000 in November, from 444 000 a month earlier.

Meanwhile, a report by the British Bankers Association (BBA) will show the number of newly approved mortgages in November. BBA includes the main British banks, which account for 60% of mortgage lending in the UK and will probably report a 44 500 newly approved loans for house purchase, compared to 42 808 a month ago.

Wednesday, (December 25th), is an official holiday in UK and the US due to Christmas Eve.

On Thursday (December 26th) the US Department of Labor will report the number of people who filed for unemployment benefits for the week ended December 21st. The initial jobless claims will probably increase to 382 000, from 379 000 last week.

On Friday (December 27th) no important economic indicators will be released from the UK and the US.