"It doesn't take much to move around a market like this so trades that would normally be low impact could actually push things around and that makes these moves hard to read on a day-to-day basis" - Jefferies.

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The Pound to Dollar exchange rate had risen to one-week highs in mid-week trade but handed back these gains after the National Association of Realtors said a slump in pending sales of U.S. homes deepened during November, making for the sixth successive month of declines.

U.S. exchange rates had fallen broadly to the benefit of Sterling on Wednesday, lifting the Pound-Dollar rate briefly above 1.21, but November's pending home sales data appeared to turn the market on its head.

Pending transactions were down by four percent in November when the economist consensus had looked for a -0.9% fall while October's -4.6% reading was revised down to -4.7% in an outcome that potentially presages deeper declines in the existing home sales data up ahead.

"Pending home sales in November 2022 recorded the second-lowest monthly reading in 20 years as interest rates climbed, drastically cutting into the number of contract signings to buy a home," the National Association of Realtors said.

While the association says home transactions could rebound in the months ahead due to recent declines in mortgage rates, it also says "the Pending Home Sales Index generally leads Existing-Home Sales by a month or two."

Above: Pound to Dollar rate at hourly intervals with AUD/USD and NZD/USD. Click the image for closer inspection.

The Federal Reserve interest rate rose to 4.5% in December but there is uncertainty over whether it is the current level of interest rates or the possibly-mistaken assumptions of home buyers that are driving transactions lower.

This is because markets and economists have wagered recently that U.S. interest rates will likely be cut from current levels before long and such expectations provide an incentive for U.S. home buyers to hold off on transactions, given that U.S. mortgages tend to be fixed over a 30-year period.

Wednesday's data came during a trading session in which transaction volumes were lower than usual owing to the recent festive break in Northwestern hemisphere markets, which can have a suppressive effect on risk-taking activity among traders into the New Year.

"It doesn't take much to move around a market like this so trades that would normally be low impact could actually push things around and that makes these moves hard to read on a day-to-day basis," writes Brad Bechtel, global head of FX at Jefferies, in a Wednesday market commentary.

"What we do know for sure is that the USD is well underperforming the recovery in 10yr US real rates," Bechtel adds.

Above: Changes in interbank trading volumes for major currency exchange rates on Tuesday 27 December. Source: Goldman Sachs Marquee. Click the image for closer inspection.