Forex - GBP/USD weekly outlook: December 30 - January 3

Investing.com - The pound rallied to the highest level since August 2011 in thin year-end trading conditions on Friday, on speculation the Bank of England will raise interest rates sooner than previously anticipated.

GBP/USD rose to a daily high of 1.6578 on Friday, the pair’s strongest since August 19, 2011, before pulling back to settle at 1.6479, up 0.42% for the day. For the week, the pair advanced 0.91%.

Cable is likely to find support at 1.6369, the low from December 26 and resistance at 1.6616, the high from August 19, 2011.

Trading volumes remained limited as many investors already closed books before the end of the year, reducing liquidity in the market, which helped exaggerate market moves.

The pound rallied along with other European currencies, such as the euro and the Swiss franc, after European Central Bank Governing Council member Jens Weidmann said keeping interest rates low may endanger political reforms.

According to Germany’s Bild newspaper, Weidmann said low inflation shouldn’t be used to justify loose monetary policy. "We must take care to raise interest rates again in a timely manner should inflation pressures build," he reportedly added.

Demand for the greenback remained supported amid expectations of further stimulus tapering by the Federal Reserve. The U.S. central bank will start reducing its bond-buying stimulus program by USD10 billion a month in January, amid indications of an improving U.S. economy.

Data on Thursday showed that the number of individuals filing for initial jobless benefits declined by 42,000 to a seasonally adjusted 338,000 last week. Analysts were expecting U.S. jobless claims to fall by 35,000 to 345,000 from the previous week’s revised total of 380,000.

In the week ahead, the U.S. is to publish reports on pending home sales, consumer confidence and jobless claims, as investors attempt to gauge the strength of the world’s largest economy.

Trading volumes are expected to remain light, with many markets closed for the New Year’s holiday.

Ahead of the coming week, Investing.com has compiled a list of these and other significant events likely to affect the markets.

Monday, December 30

The U.S. is to release private sector data on pending home sales, a leading indicator of economic health.

Tuesday, December 31

The U.S. is to produce private sector data on consumer confidence and house price inflation, as well as a report on manufacturing activity in the Chicago region.

Wednesday, January 1

Markets in the U.K. and the U.S. will remain closed for the New Year’s holiday.   

Thursday, January 2

The U.K. will also release its manufacturing PMI.

Later in the day, the Institute of Supply Management is to release its manufacturing PMI, while the Labor Department is to release its weekly report on initial jobless claims. The U.S. is also to publish data on construction spending.

Friday, January 3

The U.K. is to publish data on activity in the construction sector, a leading indicator of economic health, as well as a report on net lending to individuals and mortgage approvals.

The U.S. is to round up the week with official data crude oil stockpiles and natural gas inventories.