British Pound: Recovery targets upper 1.36 area against US Dollar – Scotiabank

Scotiabank's analysts observe the British pound gaining approximately 0.4% against the US dollar in a single day, with UK Prime Minister's economic indicators having minimal influence. The spotlight moves to the Bank of England's policy decision, where a 25 basis point increase is already anticipated, and additional tightening is expected.

Technically, the analysts identify a favorable situation above the 200-day moving average, with a recovery from the mid-October lows aiming for the upper 1.36 region. The pound is leading the euro's progress versus the USD, rising around 0.4% intraday. The October UK Services and Composite PMI data were revised slightly lower to 52.8 and 52.9, respectively.

Apart from the USD impact from the mid-term elections, the pound's attention will rapidly shift to tomorrow's Bank of England policy announcement. A quarter-point hike is almost entirely priced in, with swap markets forecasting an additional 75 basis points of tightening from the Bank of England over the next year. A daily closing above the 200-day moving average (1.3425) would be advantageous for the pound, a closing above 1.3470 (61.8% retracement of the GBP's August-October decline) being even more significant.

The pound's performance supports the current belief that the robust recovery from the mid-October low, which has completed a major weekly reversal, will lead to a return to the upper 1.36 region in the upcoming weeks.