Post-Christmas Rally Continues As Pound Soars

 | Dec 27, 2013 07:14AM ET

GBP/USD continues to impress with a late-week rally and has gained around 140 points on Friday, as the pair trades in the mid-1.65 range in the European session. It's another light schedule for releases, with no UK events for the third straight day. In the US, today's highlight is Crude Oil Inventories.

The British pound continues to soar against the retreating US dollar. The pound has gained close to two cents since Wednesday, as low liquidity due to the holiday has resulted in sharp movement from the pair over the past two days. These are the highest levels we've seen from GBP/USD since May 2011.

US Unemployment Claims dropped sharply on Thursday. The indicator fell to 338 thousand, down from 379 thousand in the previous release. The estimate stood at 346 thousand. The sharp reading was a dramatic reversal from numbers over the past two weeks, which were much higher than the forecast. With the Federal Reserve poised to begin its long-awaited QE taper next month, employment releases have taken on added significance. If the labor market continues to improve, we are likely to see further QE reductions in 2014, which would give a boost to the US dollar against its major rivals.

There was some holiday cheer from US releases on Tuesday, as manufacturing and housing numbers pointed upwards. Core Durable Goods Orders posted a strong gain of 1.2%, its best showing since April. The key manufacturing indicator had posted four consecutive declines, so the sharp gain was welcome news. Durable Goods Orders bounced back from a sharp decline in October with a gain of 3.5%, well above the estimate of 1.7%. New Homes Sales also impressed with a five-month high, climbing to 464 thousand. The estimate stood at 449 thousand.