The pound dipped against the dollar on Tuesday after official data revealed the U.S. trade deficit narrowed unexpectedly in November, though the pound took back earlier losses.
The data sparked demand for the greenback by fueling sentiments the Federal Reserve will continue winding down its monthly asset-purchasing program this year.
In U.S. trading on Tuesday, GBP/USD was trading at 1.6413, up 0.05%, up from a session low of 1.6375 and off a high of 1.6438.
Cable was likely to find support at 1.6338, Monday''s low, and resistance at 1.6604, Thursday''s high.
Demand for the greenback jumped after the Commerce Department said the U.S. trade deficit narrowed to USD34.25 billion in November from a revised deficit of USD39.33 billion in the previous month.
Economists were expecting the U.S. trade deficit to widen to USD40 billion.
U.S. exports rose 0.9% to a record high of USD194.9 billion, while imports fell 1.4% to USD229.1 billion.
Investors applauded the data but remained cautious ahead of the release of the Federal Reserve’s December meeting minutes on Wednesday as well as Friday’s U.S. December jobs report, with many eager to see fresh indications on the possible timing of further Fed stimulus tapering.
The Federal Reserve is currently buying USD75 billion in Treasury holdings and mortgage debt a month to spur recovery by suppressing long-term borrowing costs, which weakens the dollar as a side effect.
Monetary authorities have said they''ll pay close attention to economic indicators when deciding the fate of stimulus measures.
Sterling was higher against the euro, with EUR/GBP down 0.09% to 0.8298.
In Europe, the yield on Irish 10-year government bond fell to its lowest level since 2009 following strong demand at auction, the country’s first offering since it exited its bailout last month.
Dampening spirits, however, was a report revealing that the annual rate of inflation in the euro zone slowed to 0.8% in December from 0.9% the previous month, which stoked deflationary concerns that softened demand for the single currency.
Elsewhere, data showed that the number of people out of work in Germany fell by 15,000 in December to 2.96 million, beating expectations for a decline of 1,000.
The country’s unemployment rate remained steady at 6.9%.
A separate report showed that German retail sales rose 1.5% in November, more than double expectations for an increase of 0.6%.
On Wednesday, the U.S. is to release the ADP report on private-sector job creation, which leads the government’s nonfarm payrolls report by two days.
Investors will also pay close attention to the Federal Reserve''s minutes of its latest policy meeting.