GBP/USD approaches 17-month lows as U.K. PMI disappoints

The pound declined against the U.S. dollar on Friday, approaching 17-month lows after the release of disappointing U.K. manufacturing activity data and as expectations for a U.S. rate hike this year lent broad support to the greenback.

GBP/USD hit 1.5495 during European morning trade, the pair’s lowest since December 23; the pair subsequently consolidated at 1.5481, retreating 0.62%. Cable was likely to find support at 1.5484, the low from December 23 and a 16-month low and resistance at 1.5621, the high from December 31. Research group Markit said the U.K. manufacturing purchasing managers’ index slipped to 52.5 this month from a reading of 53.5 in November. Analysts had expected the index to rise to 53.6 in December.

A separate report showed that U.K. mortgage approvals rose by £59,030 in November, beating expectations for an increase of £58,530. October’s figure was revised to a £59,510 gain from a previously estimated £59,430 rise. Meanwhile, the dollar remained broadly supported as a recent string of upbeat U.S. data sparked optimism over the strength of the country’s economic recovery and added to expectations for the Federal Reserve to soon raise interest rates.

Elsewhere, investors continued to focus on developments in Greece, where parliament was formally dissolved on Wednesday after Prime Minister Antonis Samaras failed earlier in the week to persuade lawmakers to back his candidate for head of state, casting the country’s international bailout into doubt. Parliamentary elections were set for January 25, almost 18 months before the current coalition’s term was due to end.

Sterling was also lower against the pound, with EUR/GBP rising 0.26% to 0.7785. In the euro zone, Markit said the bloc’s manufacturing PMI fell to 50.6 in December from 50.8 in November. Analysts had expected the index to remain unchanged this month. Germany’s manufacturing PMI remained unchanged at 51.2 this month, in line with expectations, while France’s manufacturing PMI hit 47.5 in December, down from 47.9 the previous month and confounding expectations for an unchanged reading.

Also Friday, European Central Bank President Mario Draghi said the risk of deflation in the euro zone cannot be excluded, signaling the possibility of large-scale quantitative easing measures.

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