British Pound: Sterling recovery eyes 1.36 caps against US Dollar – Scotiabank

Scotiabank strategists Shaun Osborne and Eric Theoret observe that the British Pound (GBP) is consolidating gains near the top of its one-month and multi-month ranges, with price action closely tied to fading downside risk reversals. Improved United Kingdom (UK) political risk perception and slightly more constructive yield spreads support GBP/USD, while technicals point to resistance around 1.3600–1.36s and support in the mid/lower 1.34s.

Sterling consolidates near recent highs

"The pound is quiet, consolidating its recent gains toward the upper end of both its local (one month) and medium term (multi-month) range."

"Price action continues to be driven by sentiment as we note the GBP’s tight correlation to risk reversals, which continue to fade their premium for protection against downside movement."

"The recovery is important, reflecting an overall improvement in the market’s assessment of UK (specifically political) risk and offers scope for further near-term strength for the pound."

"The release calendar is limited ahead of Thursday’s Q3 GDP (2nd), as well as the trade and industrial production figures for June. Yield spreads are also looking slightly more constructive for the pound as well, showing signs of a renewed recovery following their modest mid/late July pullback."

"Bullish – the overall technical setup remains constructive as the GBP recovers back toward its mid-July peak in the mid-1.35s, as well as the upper end of its range since mid-February."

"We note the potential for additional near-term resistance closer to 1.3600 and the May peaks in the mid-1.36s. We see support in the mid/lower 1.34s, and look to a near-term range bound between 1.3450 and 1.3550."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)