Forex - GBP/USD gains on hopes for U.S. fiscal clarity, U.K. CPI data

Shutterstock photo - Hopes the U.S. will avoid a recession next year sent the dollar falling as investors sold the greenback to take on risk, giving the pound room to rise against its U.S. counterpart on Tuesday.

In U.S. trading on Monday, GBP/USD was trading at 1.6249, up 0.28%, up from a session low of 1.6195 and off from a high of 1.6269.

The pair was likely to find support at 1.6158, Monday's low, and resistance at 1.6269, the earlier high.

The U.S. dollar saw downward pressure on hopes Washington policymakers will push through fiscal reforms and avoid recession next year.

At the end of 2012, the Bush-era tax breaks and other benefits are set to expire at the same time cuts to government spending are scheduled to kick in, a combination known as a fiscal cliff that could contract the economy by 0.5% next year if Congress fails to avoid it, according to Congressional Budget Office estimates.

Both sides of the U.S. political aisle have disagreed over the role income tax reforms should play when it comes to crafting a 2013 fiscal framework, with Democrats originally calling for tax hikes on those earning at least USD250,000 a year, with Republicans originally opposed to tax hikes for anyone.

The two political parties have since made concessions, with Republicans warming up to tax hikes on the wealthy by offering to raise rates on those earning a minimum USD1 million a year, with Democrats reportedly countering by raising the floor to USD400,000 from USD250,000.

Reports of a spirit of compromise sent the dollar falling amid a risk-on trading session.

Elsewhere, the U.S. current account deficit narrowed in the third quarter of 2012, posting the smallest deficit since the fourth quarter of 2010, government data revealed earlier Tuesday.

The U.S. Bureau of Economic Analysis reported earlier that the country's current account deficit narrowed to a seasonally adjusted USD107.5 billion in the third quarter from a revised deficit of USD118.1 billion.

Analysts had expected the U.S. current account deficit to narrow to USD103.4 billion in the third quarter, which further stoked appetite for risk that came at the dollar's expense.

U.K. inflation figures kept Cable in positive territory as well.

The U.K. Office for National Statistics reported earlier that the annual rate of consumer price inflation in the U.K. remained unchanged at 2.7% in November after an unexpected increase in October, beating out expectations for a dip to 2.6%.

On a month-on-month basis, the U.K. consumer price index rose 0.2%, in line with expectations, after rising 0.5% in October.

Core CPI, which excludes food, energy, alcohol, and tobacco costs held steady at a seasonally adjusted 2.6% in November, unchanged from October and confounding expectations for a slight increase to 2.7%.

The pound, meanwhile, was down against the euro and up against the yen, with EUR/GBP trading up 0.17% at 0.8138 and GBP/JPY up 0.66% at 136.82.

On Wednesday, the Bank of England is to publish the minutes of its most recent policy meeting, which contain important insights into current and future economic conditions from the bank's perspective. The U.K. is also to release industry data on retail sales.

The U.S. is to publish government data on building permits, an excellent gauge of future construction activity, as well as data on housing starts.

The U.S. government will also to release official data on crude oil stockpiles. - offers an extensive set of professional tools for the Forex, Commodities, Futures and the Stock Market including real-time data streaming, a comprehensive economic calendar, as well as financial news and technical & fundamental analysis by in-house experts.
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This article appears in: Investing , Forex and Currencies

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