GBP flat vs. USD with clear post-CPI stabilization – Scotiabank

The Pound Sterling (GBP) is trading flat against the US Dollar (USD) and a mid-performer among the G10 currencies, consolidating in a tight range around 1.3350, Scotiabank's Chief FX Strategists Shaun Osborne and Eric Theoret report.

Sentiment is somewhat recovering

"CBI sentiment data were mixed, and market participants remain focused on the BoE following Wednesday’s CPI disappointment. The GBP has recovered a portion of Wednesday’s CPI-driven decline and BoE expectations have recovered somewhat. The short-term rates market remains biased to BoE easing however, pricing in 9bpts for the next meeting on November 6, 17bpts by year end, and a cumulative 60bpts by next September."

"UK -US spreads are showing signs of stabilization following Wednesday’s plunge, while risk reversals are offering a potential source of support as the options market shows a continued fade in the premium for protection against GBP weakness. Finally, the UK’s fiscal situation remains a concern as media remain intensely focused on potential measures to be included in the November 26 budget release.

"The GBP’s technicals are generally neutral as it softens with its recent local range bound between last week’s low around 1.3250 and last Friday’s high above 1.3450. The RSI is bearish, but only marginally so as its drifts toward 40. The broader trend is neutral, reflecting the flat range since late May. The 50 day MA (1.3465) confirms the lack of a trend, having flattened out in midJuly. We look to a near-term range between 1.33 and 1.34."