Tuesday, 27 December 2011

Forex - GBP/USD trims gains amid renewed euro zone worries

Forexpros - The pound trimmed gains against the U.S. dollar on Tuesday, pulling back from a two-day high as renewed fears over the handling of the euro zone’s financial crisis weighed on demand for riskier assets.

GBP/USD pulled back from 1.5676, the pair’s highest since December 23 to hit 1.5648 during European afternoon trade, still up 0.09%.

Cable was likely to find support at 1.5579, the low of December 23 and resistance at 1.5728, the high of November 22.

With markets in the U.K. remaining closed for an extended holiday break and most investors already away on year-end leave, trading volumes were low, resulting in subdued trade.

Sentiment waned as the yield on Italian ten-year bonds rose above the 7% threshold, a level widely considered to be unsustainable, adding to concerns over the handling of the country’s sovereign debt crisis.

Meanwhile, Spain’s new government announced negative economic growth in the final quarter of 2011 and the first quarter of the new year, technically putting the country back into recession.

Investors were also cautious after data showed earlier that the use of the European Central Bank's overnight deposit facility reached a new, all-time high Monday, as euro zone banks increasingly turned to the ECB as a safe-haven for extra funds.

The report added to speculation that the central bank’s three-year loan operation last week did little to strengthen the region’s banking sector.

In the U.K., the Telegraph reported that the government is considering plans to restrict the flow of money in and out of the country, in order to protect the economy in the event of a full-blown dislocation of the single currency bloc.

Elsewhere, sterling edged higher against the euro with EUR/GBP retreating 0.07%, to hit 0.8347.

Later in the day, the U.S. was to publish industry data on house price inflation, as well as a report on consumer confidence and manufacturing activity in Richmond.