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Pound-Dollar rate enjoys strong recovery

11 Oct 2021

The Pound-to-Dollar rate has made a robust comeback from the lows at the end of last month, but could face struggles after hitting the 1.37 mark due to the mounting weight of the Fed and Dollar strength.

Sterling kicked off the week over the 1.36 level against the Dollar, close to completely reversing the sharp drop at the end of September in a move that may have been helped by the Bank of England’s change in policy stance.

The Pound should be sensitive to crucial economic data issued in the UK, coupled with statements from a number of BoE policymakers who are among the most ‘dovish’ on the Monetary Policy Committee (MPC), reports Pound Sterling Live.

“Tuesday’s release of Sep jobless claims and Aug employment data and Wednesday’s GDP data presents markets with additional information to price in (or out) BoE hikes in early-2022,” said Juan Manuel Herrera, a strategist at Scotiabank.

“A break past the mid-1.36s remains the key test for the GBP to extend last week’s gains until resistance at 1.37 followed by the 50-day MA of 1.3744. Support is 1.3590/600 followed by the mid1.35s,” Herrera went on to add.

The Scotiabank strategist also said that the Pound-Dollar rate will face technical resistance around 1.37, after surpassing 1.3650, coinciding with the 50% Fibonacci retracement of the Pound’s drop at the beginning of August from close to 1.40.

Others have made reference to further barriers to additional gains of between 1.3752 and 1.3914. “Initial resistance is 1.3752, the 23rd September high and the 55-day ma at 1.3758 and the 1.3914 mid-September high. Currently while capped by 1.3914 we will maintain a negative bias,” according to Karen Jones, head of technical analysis for currencies, commodities and bonds at Commerzbank.

“GBP/USD has not maintained the break of the 1.3515/04 January 2009 low and 2019 peak – it is not clear if this was a premature break or a false break, but intraday Elliott wave counts remain negative and for now we will favour the downside,” Jones added in a research note.

The Pound seemed unwilling to abandon last week’s 1.3550 level and may gain additional support from key UK economic figures scheduled to be published over the next few days.

“Will the Bank of England walk back the front-loaded market pricing of UK rate hikes? It will be important to watch,” commented John Briggs, global head of desk strategy at Natwest Markets.