Forex: GBP/USD slips below 1.63 after US budget passes House of Representatives

on Dec 13, 2013
Updated: Oct 21, 2019

**, Friday 13 December:**

Yesterday the Republican-controlled US House of Representatives passed the two-year, bi-partisan budget plan that would trim automatic federal spending cuts and avert another government shutdown at the start of the New Year. Following the news, the GBP/USD has turned south and it has not looked back in today’s trading, dropping below the psychological level of 1.63 in the European session.

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By a vast margin, the House approved the fiscal deal, reached on Tuesday by Democrat Senator Patty Murray and Republican Representative Paul Ryan behind closed doors. The budget agreement must next pass the US Senate before being sent to President Barack Obama for signing into law.

In the view of Nordea Markets’ chief analyst on the US Johny Jacobsen, “yet another green light for tapering comes from this week’s budget deal, which, assuming it is passed in Congress, reduces the risk of a new government shutdown in January, and more generally, raises the hope that Capitol Hill has finally broken through the partisanship and the gridlock.” He now believes “there is close to a 50 percent chance that the Fed will announce tapering of its asset purchases as early as next week’s FOMC meeting”. If the US central bank does not reduce the pace of quantitative easing next year, Jacobsen would expect the announcement at the 28-29 January FOMC meeting.

Nordea Markets’ analysts believe the only obstacle for a December taper is inflation, which “is not trending back to the Fed’s 2 percent target, it is actually trending away from the objective.” In line with the central bank’s mandate of price stability, the FOMC is in no hurry to start trimming stimulus.
November’s US Producer Price Index, scheduled for release at 13.30 UTC today, may hint whether the stubbornly low inflation in the US is going to postpone the taper decision for 2014. Analysts expect that the leading indicator of inflation stayed unchanged during the month, following October’s decline of 0.2 percent.

In the UK, Spencer Dale, a member of the Bank of England’s Monetary Policy Committee is due to speak at the Confederation of British Industry Midwinter Lunch, in Essex at 12.30 UTC.
Right now, the GBP/USD is printing new two-week lows, with the latest at 1.6285, down 0.33 percent intraday.
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