Forex - GBP/USD drops as U.S. confidence report sparks bullish Fed hopes

Investing.com - The pound moved lower against the dollar on Tuesday after an upbeat U.S. consumer confidence report sparked expectations that the Federal Reserve will conclude a two-day policy meeting deciding the economy is on the mend and may be in need of reining in some time next year.

In U.S. trading on Tuesday, GBP/USD was trading down 0.28% at 1.6937 up from a session low of 1.6934 and off a high of 1.6995.

Cable was likely to find support at 1.6739, the low from June 11, and resistance at 1.7001, Monday's high.

The dollar firmed after the Conference Board reported that its consumer confidence index rose to 90.9 in July from an upwardly revised 86.4 in June. It was the highest reading since October 2007, defying consensus forecasts for a decline to 85.3.

The data sent investors betting that the Federal Reserve on Wednesday will make fresh cuts to its monthly bond-buying program and deliver and upbeat take on the U.S. economy, possibly alluding to a need to hike interest rates some time in 2015.

Investors were also keeping an eye on the release of July's nonfarm payrolls report due for release on Friday.

Fed Chair Janet Yellen has said that interest rates could rise sooner if the recovery in the labor market continued.

While markets expect the Fed to wrap up its bond-buying program this year—likely some time in or around October—uncertainty still persists as to how much time will pass after stimulus programs conclude and rate hikes begin, with both positive and negative data driving investor guesses on Fed timetables.

Elsewhere in the U.S., investors took in stride the S&P/Case Shiller Home Price Index.

The 20-city composite index for May grew 9.3% year-over-year, down from April's 10.8% reading, though the 10-city index grew 9.4%, down from April's 10.9%, though markets have priced in slackness in the U.S. housing sector.

Meanwhile in the U.K., official data showed that net lending to individuals rose by £2.5 billion last month, missing expectations for an increase of £2.6 billion. Net lending to individuals in May was revised up to a £3.0 billion increase from a previously estimated £2.7 billion gain.

Elsewhere, sterling was down against the euro, with EUR/GBP up 0.04% at 0.7915, and flat against the yen, with GBP/JPY unchanged at 173.00.

On Wednesday, the pair will move on the Fed's statement on interest rates and monetary policy as well as revised second-quarter U.S. GDP growth data and the ADP report on private sector job creation.

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