GBP Rally Continues

The British Pound has been on a hot streak recently with GBP enjoying a strong rally against USD over the month so far. GBPUSD is now up almost 9% off the initial November lows and almost 17% off the all-time lows seen in September on the back of the former UK PM’s disastrous mini-budget. The rebound in GBP has largely been driven by the restoration of confidence on the back of Rishi Sunak taking over as PM and Jeremy Hunt delivering a much more balanced and credible budget this month.

Better UK Data

GBP received an additional boost this week from the latest set of UK PMI readings. Both services and manufacturing readings had been expected to fall further from the prior month’s numbers but both came in above expectations. At the same time, US PMIs were seen undershooting forecasts, raising recessionary fears and reinforcing the view that the Fed is likely to opt for a smaller hike next month.

Fed in Focus

The sell off in USD has played a large part in the reversal of fortunes for GBPUSD, reflecting the extent to which USD long positions has built up. With some high-level names having bought GBP at the lows in September, more cautious players are likely joining the move as price heads higher now which should keep the pair supported near term. The big key here will be the next US inflation reading which comes ahead of the December FOMC meeting. If further CPI cooling is seen, a smaller hike in December looks to be far more likely, allowing GBPUSD further room to recover. However, should we see inflation jump back up, this will no doubt keep a larger hike on the table, sending GBPUSD lower near-term.

Technical Views

GBPUSD

The rally in GBPUSD off the all-time lows has seen price underpinned by a steep rising trend line. Price has recently broken above the 1.1474 level and is now fast approaching a test of the 1.2195 level. With momentum studies supporting, the focus is on a continuation higher with 1.2650 the next big objective for bulls.