The pound slumped against the dollar on Thursday as investors snapped up greenback positions in wake of the Federal Reserve''s Wednesday decision to trim its USD85 billion in monthly bond purchases by USD10 billion in January.
In U.S. trading on Thursday, GBP/USD was trading at 1.6374, down 0.10%, up from a session low of 1.6336 and off from a high of 1.6398.
Cable was likely to find support at 1.6220, Tuesday''s low, and resistance at 1.6485, Wednesday''s high.
On Wednesday, the Fed announced that it would reduce its USD85 billion-a-month bond-buying program by USD10 billion in January now that the economy is improving, which boosted the greenback against most major currencies.
Fed bond purchases tend to weaken the dollar by driving down long-term interest rates that send investors to assets like stocks to encourage investing and hiring.
The U.S. central bank reiterated that interest rates are likely to remain low even after the unemployment rate drops below 6.5%, the threshold at which the Fed has previously said it would start to consider rate increases, though the dollar enjoyed support for much of the day, though less-than-stellar U.S. economic indicators watered down the greenback''s gains.
The Federal Reserve Bank of Philadelphia said that its manufacturing index jumped to 7.0 for December from November’s 6.5 reading, though analysts were expecting the index to rise to 10.0 this month.
A separate report showed that U.S. existing home sales declined 4.3% to a seasonally adjusted 4.90 million units in November from 5.12 million in October. Analysts were expecting U.S. existing home sales to fall 1.5% to 5.03 million units last month.
Also on Thursday, the U.S. Department of Labor said the number of individuals filing for initial jobless benefits in the week ending Dec. 14 increased by 10,000 to a seasonally adjusted 379,000, the highest level since March.
Analysts were expecting U.S. jobless claims to fall to 334,000 last week from the previous week’s revised total of 369,000.
Meanwhile in the U.K., the Office for National Statistics reported earlier that retail sales increased by 0.3% last month, matching forecasts.
Retail sales were 2% higher on a year-over-year basis, the ONS said, undershooting expectations for a 2.3% gain, after rising at an annual rate of 1.8% in October.
Demand for the pound remained supported after data on Wednesday showed that the U.K. unemployment rate unexpectedly fell to a four-and-a-half year low of 7.4% in the three months to October, fuelling hopes that the Bank of England will raise interest rates ahead of other central banks.
The pound, meanwhile, was up against the euro and down against the yen, with EUR/GBP down 0.14% at 0.8339 and GBP/JPY down 0.16% at 170.66.
On Friday, the U.S. is to publish data on existing home sales, manufacturing activity in the Philadelphia region and initial jobless claims.
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