Forex - GBP/USD drops on fears U.S. fiscal deal growing more elusive

Shutterstock photo - The pound fell against the dollar on Friday as investors sought safety in liquid greenback positions on fears political differences may hold up fiscal reforms in the U.S. and possibly usher in a recession.

In U.S. trading on Friday, GBP/USD was trading at 1.6162, down 0.72%, up from a session low of 1.6153 and off from a high of 1.6285.

The pair was likely to find support at 1.6086, the low of Dec. 13, and resistance at 1.6285, the earlier high.

Republicans in the U.S. House of Representatives canceled plans to vote on a budget proposal tabled by Speaker Boehner, himself a Republican, which called for tax hikes on incomes over USD1 million, well above a White House proposal calling for tax hikes on incomes topping USD400,000.

Rebellion in Boehner's own party rattled nerves and stoked fears the U.S. will fail to reach a budgetary deal, which will allow tax breaks to expire for all Americans in 2013 and deep cuts to government spending to kick in at the same time, a combination known as a fiscal cliff that could tip the country into a recession next year.

The news overshadowed otherwise largely positive data.

The U.S. Census Bureau reported earlier that core durable goods orders, which exclude transportation items, rose 1.6% in November, beating market expectations for a 0.2% decline though down slightly from a 1.9% increase the previous month.

Durable goods orders rose by 0.7% last month, outpacing consensus forecasts for a 0.2% rise though down from a 1.1% increase in October.

Meanwhile, a separate Commerce Department report revealed that personal spending in the U.S. rose by 0.4% in November, beating expectations for a 0.3% rise and far outpacing 0.1% fall the previous month.

Also in the U.S. earlier, the Thomson Reuters/University of Michigan's consumer sentiment index slumped unexpectedly in December, possibly due to fears the U.S. will careen over the fiscal cliff.

The index dipped to 72.9 for December from 74.5 the previous month, missing analysts' call for an improvement to 74.7 this month.

Meanwhile in the U.K., official data earlier revealed that the economy grew less than anticipated in the third quarter, expanding 0.09%, missing market calls for a 1% rise.

A separate report showed that public sector net borrowing rose more than expected in November, gaining to GBP15.3 billion from GBP6 billion in October.

Analysts had expected public sector net borrowing to rise to GBP14.2 billion last month.

Elsewhere, the U.K. current account deficit narrowed to GBP12.8 billion in the third quarter from a deficit of GBP17.4 billion, beating expectations for a drop to GBP14 billion.

The pound, meanwhile, was down against the euro and down against the yen, with EUR/GBP trading up 0.21% at 0.8153 and GBP/JPY down 0.90% at 136.12.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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