Investing.com - 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.
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