GBP/USD Falls From Two-Year High

Although the Pound brushed a two-year high against the US Dollar earlier in the week and continues to receive underlying support from the impressive economic data emerging from the UK, the British asset slipped against the ‘Greenback’ before the weekend.

Sterling faltered against the US asset yesterday as the pace of expansion in the UK manufacturing sector slowed and the odds of the Federal Reserve tapering stimulus at its next meeting rose in response to upbeat US employment and manufacturing reports.

While today’s impressive UK house price, mortgage approval and construction sector figures boosted the Pound against some of its peers the currency edged lower against the US Dollar and is now heading for its biggest five-day drop in nine weeks against its American rival.

Sterling held on to gains against the Euro as separate reports showed that UK house prices increased by a whopping 1.4 per cent in December, month-on-month, while mortgage approvals jumped to an almost six-month high.

The UK construction PMI came in at 62.1, a better result than economists had forecast and still well above the 50 mark separating growth from contraction.

In response to the modest GBP/EUR gains recorded afterwards currency strategist Christian Lawrence noted; ‘Euro-Sterling is going to struggle to make a meaningful move higher and the path of least resistance will probably be lower for the pair’.

As economic news for the Eurozone was thin on the ground today the Euro was trading in a fairly narrow range against several of its major rivals.

Over the weekend Pound fluctuations may be limited but serious volatility can be expected to occur next week as UK services PMI and trade balance figures are published.

Economists are expecting that the UK services sector expanded at a faster pace in December, with the measure coming in at 60.3 – up from 60.0 in November.

Of course the Bank of England’s rate decision is also likely to be the cause of major Pound movement.