The pound edged higher against the U.S. dollar in light trade on Tuesday, as renewed confidence in the global economic outlook supported market sentiment ahead of the year end.
GBP/USD hit 1.6545 during European morning trade, the pair''s highest since December 27; the pair subsequently consolidated at 1.6539, adding 0.25%.
Cable was likely to find support at 1.6407, the low of December 27 and resistance at 1.6578, the high of December 27 and a 28-month high.
Trading volumes remained limited as many investors already closed books before the end of the year, reducing liquidity in the market, which helped exaggerate market moves.
Demand for the pound remained supported after a string of positive U.K. economic reports this month fuelled hopes that the Bank of England will raise interest rates ahead of other central banks.
But the greenback''s losses were limited amid expectations for further stimulus tapering by the Federal Reserve. The U.S. central bank will start reducing its bond-buying stimulus program by USD10 billion a month in January, amid indications of an improving U.S. economy.
Sterling was higher against the euro, with EUR/GBP retreating 0.44% to 0.8328.
The single currency had gained some ground on Friday, after European Central Bank Governing Council member Jens Weidmann said keeping interest rates low may endanger political reforms.
According to Germany’s Bild newspaper, Weidmann said low inflation shouldn’t be used to justify loose monetary policy. "We must take care to raise interest rates again in a timely manner should inflation pressures build," he reportedly added.
Separately, ECB President Mario Draghi said he sees no urgent need to cut the euro zone''s main interest rate further and sees no signs of deflation.
Later in the day, the U.S. was to produce private sector data on consumer confidence and house price inflation, as well as a report on manufacturing activity in the Chicago region.
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