Forex - Pound close to 9-month highs vs. dollar

The pound was hovering close to nine-month highs against the dollar on Wednesday as a U.S. government shutdown entered a second day with no signs of a resolution to political deadlock over federal funding. 

GBP/USD hit 1.6251 during U.S. morning trade, the session high; the pair subsequently consolidated at 1.6235, rising 0.24%.

Cable was likely to find support at 1.6127, Monday’s low and near-term resistance at 1.6259, Tuesday’s high and the highest since early January.

The dollar remained under pressure amid fears that the U.S. government shutdown would curb the economic recovery and prompt the Federal Reserve to maintain its stimulus program for longer.

Last month the U.S. central bank took markets by surprise with a decision to keep its stimulus program on track, saying it wanted to see more evidence of a sustained economic recovery before tapering.

Markets were also mulling over how the political deadlock in Washington will impact on negotiations to raise the U.S. debt ceiling, which the U.S. Treasury Department has estimated will be reached by October 17.

Sentiment on the dollar was also hit after a report showed that the U.S. private sector added fewer-than-expected jobs in September, clouding the outlook for the economic recovery. 

Payroll processing firm ADP said non-farm private employment rose by a seasonally adjusted 166,000 in September, below expectations for an increase of 180,000. 

The previous month’s figure was revised down to a gain of 159,000 from a previously reported increase of 176,000.

Sterling remained supported after data released on Wednesday showed that activity in the U.K. construction sector slowed slightly in September, but remained close to August’s almost six-year high.

The Markit U.K. construction purchasing managers' index ticked down to 58.9 in September from 59.1 in August. Economists had forecast a reading of 59.2.

The report said the latest expansion of construction employment was the sharpest since December 2007.

Sterling slipped lower against the euro, with EUR/GBP rising 0.26% to 0.8373.

The euro was boosted after Italian Prime Minister Enrico Letta survived a vote of confidence in parliament on Wednesday, after Silvio Berlusconi dropped his opposition to the coalition, in a surprise U-turn after announcing Saturday that he was pulling his ministers out of the government.

Elsewhere, the European Central Bank left interest rates on hold at 0.5%, in a widely expected decision.

ECB President Mario Draghi said risks to the euro zone economy remained to the downside, before reiterating that bank rates would remain at current or lower levels for an “extended period of time”, given the subdued inflation outlook and low levels of growth in the region.

Draghi also reiterated that the ECB remains ready to extend a third round of ultra-cheap loans to banks, in order to safeguard the recovery.