GBP/USD Forecast: Pound Sterling Recovery Faces Support Test
Pound Sterling slips against the US Dollar, testing near-term support as Scotiabank retains a recovery view based on last week’s bullish reversal.
The Pound to Dollar exchange rate slipped to $1.3372 on Thursday, marginally below Scotiabank’s 1.3375 support level.
The bank nevertheless sees scope for a recovery towards 1.3650-1.3675, the upper end of the broader trading range identified by its analysts.
Its immediate technical rating remains neutral.
A bullish weekly signal faces a short-term setback
Chief FX strategist Shaun Osborne and FX strategist Eric Theoret write: “Intraday price patterns look a little soft, but the GBP retains solid, bullish momentum on the intraday and daily oscillator studies.”
Their case rests on the rebound from the low reached after the US inflation release on 14 October:
“After the solid GBP rise from last Wednesday’s post-US CPI low drove a huge bullish weekly reversal on the chart (outside range week), we continue to think that spot can climb back towards the top of the broader trading range in place in the past few weeks around 1.3650/75.”
An outside-range week spans both sides of the previous week’s trading range, with the subsequent strong finish giving the pattern its bullish interpretation here.
The bank cautions:
“Losses below 1.3375 support may check the GBP advance in the short run, however. Resistance is 1.3430/35.”
Risk aversion and the Budget complicate the advance
Earlier in Thursday’s session, Scotiabank noted:
“Sterling is little changed on the session, despite its occasional “high beta” mantle in times of equity market volatility.”
The bank saw investors favouring the Japanese Yen and Swiss Franc as technology-sector concerns and geopolitical tensions weighed on sentiment.
On the Dollar Index, the strategists add:
“A clear bearish reversal has been observed since mid-October, however its extension appears to be struggling in the context of a deteriorated market tone.”
In the UK, Scotiabank reports: “The CBI’s business survey did, however, show an improvement in (still weak) business optimism while new orders were soft and selling prices rose.”
The bank thinks GBP/USD could remain rangebound ahead of the 28 October Budget.
The pressure on fiscal headroom and gilt yields means investors will also be looking for credible spending and funding plans.
What This Means for GBP/USD
At $1.3372, Pound Sterling is only marginally below Scotiabank’s support level, rather than showing a decisive breakdown. Buyers still need to regain that level and overcome 1.3430-1.3435 before the more distant range top becomes a realistic test.
For Pound-to-Dollar transfers, the bank’s 1.3650-1.3675 objective offers scope for better rates, but carries no fixed deadline.
September retail sales, due on Friday, 23 October, could test whether domestic growth provides fresh support. Beyond that, the Budget may determine whether investors are willing to extend Pound Sterling’s advance or keep it confined to its recent range.
Our currency coverage draws on live market data, official economic releases and published bank research.
