GBP/USD Daily Fundamental Analysis for September 21, 2011

On Tuesday, the pound continued its decline against the dollar, hovering around eight-month low, as worries regarding the escalating European debt crisis and sluggish growth pace in major economies eroded demand on high-yielding currencies.

Standard & Poor’s cut Italy’s credit rating by one notch to A from A+ with a negative outlook on fear the weakening growth and the “fragile” government will not be able to cut the second biggest debt load in the euro area according to the statement from S&P last night, adding to worries that crisis would intensify in the euro area amid speculations would face a default.

In the U.S., housing starts data showed a 5.0% drop in August from the prior 2.3% fall, adding to concerns that the sluggish growth pace would continue in the third quarter.

On Wednesday, at 08:30 GMT, attention will be toward BoE minutes release which may show a split among policy makers as some may support Adam Posen in adding to the APF after the slowdown in the economy. At the same time public finance excluding interventions will be due.

Thereafter, eyes will be on MBA mortgage applications for Sep. 16 at 11:00 GMT while will be followed by existing home sales at 14:00 GMT. Existing home sales report is predicted to advance 1.7% from the prior 3.5% drop. However, the main highlight of the day will be the FOMC rate decision due at 18:15 GMT.