GBP/USD loses ground after a drop in UK services activity

The sterling declined for a third day against the US dollar, following a report that showed UK services growth unexpectedly slowed its pace in December.

Having reached a session low at 1.6338 at 09:35 GMT, GBP/USD traded at 1.6378 at 12:16 GMT, losing 0.25% on a daily basis. Support was likely to be received at December 25th low, 1.6313, while resistance was to be encountered at January 3rd high, 1.6449. The pair settled last week 0.36% lower.

The pound was pressured after a report by the Markit Economics and the Chartered Institute of Purchasing and Supply (CIPS) showed the UK Services PMI declined to a six-month low of 58.8 in December from 60.0 in November. Analysts had expected the index to reach 60.3. Although the index slowed its pace in the last month, it still remained well above the 50.0 level, which indicates expansion.

Meanwhile, recent upbeat data spurred speculation that Fed might decide to taper its stimulus program further, supporting the greenback.

The Federal Reserve Bank said on December 18th that it plans to reduce its monthly bond purchases in January to $75 billion from $85 billion. According to the median estimate of economists surveyed by Bloomberg on December 19th, the Federal Reserve may reduce the purchases in $10 billion increments over the next seven meetings, before ending the program, which tends to devalue the US currency, in December 2014.

On Thursday the Department of Labor in the United States reported that the number of people, who filed for unemployment assistance during the week ended December 28th, dropped to 339 000 from the upwardly revised 341 000 in the preceding week. Analysts had projected that the number of initial jobless claims will increase to 342 000.

In addition, according to data by the Institute for Supply Management (ISM), US companies operating in the sector of manufacturing increased their activity at a weaker but still steady rate in December compared to November. The corresponding index, gauging the performance of manufacturing sector in the country, came in at a value of 57.0 in December, down from 57.3 in the previous month, which was also the highest level of the index in 2.5 years. Analysts had forecast that the manufacturing PMI will demonstrate a larger drop in December, to 56.9.

The greenback may receive further support later in the day as a report may show the activity in the US sector of services increased, with the corresponding PMI rising to a reading of 54.5 in December from 53.9 in the preceding month. The Institute for Supply Management (ISM) will reveal the official data at 15:00 GMT today.

Elsewhere, having hit a session low at 1.3572 at 06:05 GMT, EUR/USD traded at 1.3608 at 10:23 GMT, adding 0.14% for the day. Support was likely to be received at December 5th low, 1.3544, while resistance was to be encountered at January 3rd high, 1.3672.