Forexpros – The pound fell sharply against the U.S. dollar on Friday, paring some of the week’s gains as comments by Bank of England Governor Mervyn King added to concerns over the global effects of the debt crisis in the euro zone.
GBP/USD hit 1.5773 on Wednesday, the pair’s highest since November 30; the pair subsequently consolidated at 1.5582 by close of trade on Friday, gaining 0.26% over the week.
Cable was likely to find support at 1.5495, the low of December 20 and resistance at 1.5773, the high of December 21.
Trading volumes remained thin ahead of the Christmas holiday weekend, resulting in quiet trade.
Sterling came under pressure on Friday, after King warned that the worsening debt crisis in the euro zone is causing a “dangerous dependence” on central banks.
The BoE governor also said that the European Central Bank’s three-year loan operation, launched on Wednesday, did not amount to a long term fix to the region’s financial troubles.
In an unprecedented refinancing operation, the ECB allotted EUR489.19 billion to 523 European lenders, in a move to avoid a credit crunch in the euro zone and hopefully increase bond purchases of indebted euro zone countries. But the heavy demand met by the operation underlined concerns over the scale of the financial crisis in the single currency bloc.
Meanwhile, the pound also came under pressure after a report by Gfk showed Wednesday that an index of consumer confidence in the U.K. declined unexpectedly to minus 33 in December from a reading at minus 31 the previous month.
Sterling remained supported after the U.K.’s Office for National Statistics said on Thursday that the country’s economy expanded 0.6% during the third quarter, up from a preliminary estimate of 0.5%. Annualized GDP rose at a rate of 0.5%, in line with expectations and unrevised from an initial estimate.
Separately, the ONS said that the country’s current account deficit widened to GBP15.2 billion in the third quarter, the highest since records began in 1955. Economists had expected the current account deficit to stand at GBP5.5 billion.
Meanwhile, investors were cautious amid a flurry of mixed U.S. data. A report by the U.S. University of Michigan’s said its index of overall consumer sentiment rose to 69.9 in December, exceeding expectations for a rise to 68.2, while a separate report showed that the number of people who filed for unemployment assistance in the U.S. in the week ending December 16 fell to the lowest level since April 2008.
The reports came after the U.S. Bureau of Economic Analysis said gross domestic product increased at a seasonally adjusted annual rate of 1.8% during the third quarter, down from a previous estimate of 2.0%.
The data primarily reflected a downward revision to personal consumption, which grew 1.6% compared to a previous estimate of 2.3%. Consumer spending typically accounts for nearly 70% of U.S. economic growth.
In the week ahead trading volumes are expected to remain light because many traders have closed books to lock in profit before the end of the year, reducing liquidity in the market and increasing the volatility.
Meanwhile, the U.S. is to release key reports on consumer confidence, jobless claims and home sales, while the U.K. is to publish data on house price inflation.
Ahead of the coming week, Forex Pros has compiled a list of these and other significant events likely to affect the markets.
Monday, December 26
Markets in the U.S. and the U.K. will be remaining closed for the Boxing Day holiday.
Tuesday, December 27
Markets in the U.K. will be remaining closed for a post-Christmas bank holiday.
The U.S. is to publish industry data on house price inflation, a leading indicator of demand in the housing market. The U.S. is also to release data on consumer confidence and manufacturing activity in Richmond.
Wednesday, December 28
The U.S. is to release the treasury currency report.
Thursday, December 29
The U.S. is to publish its weekly government report on initial jobless claims, as well as industry data on pending home sales, a leading indicator of economic health. The U.S. is also to release official data on crude oil stockpiles and industry data on business conditions in the Chicago area, a leading indicator of economic health.
Friday, December 30
The U.K. is to round up the week with a report by the Nationwide Building Society on house price inflation, a leading indicator of the housing industry’s health.
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