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The British Pound’s recovery against the Dollar gained traction following the Bank of England’s November policy update.
The Pound to Dollar exchange rate () has pared at least half of the post-election result slump by the time of writing on Thursday.
The recovery accelerated after the Bank of England cut interest rates by 25 basis points, but it gave few clues about whether it would cut them again in December.
Instead, the Bank was content to signal that its approach to lowering interest rates would be cautious, particularly given that it raised its forecasts for inflation in the near term.
“The pound is pushing higher after the Bank of England cut interest rates for a second time but raised its inflation forecasts, helping to ratify a repricing in gilt yields that followed the government’s recent Autumn Budget,” says Karl Schamotta, Chief Market Strategist at Corpay.
GBP/USD quotes at 1.2963 at the time of writing, which amounts to a 1.0% recovery from the lows registered on Wednesday when it became clear that Donald Trump and his Republicans had stormed to victory.
Above: GBP/USD at 30m intervals.
“The bank maintained a gradual approach to the removal of policy restraint. Given that we expect the bank to maintain a patient easing bias we anticipate that for now the bank is set to maintain a once a quarter policy strategy,” says Jeremy Stretch, Chief International Strategist at CIBC (TSX:) Capital Markets.
Although the Pound’s recovery against the Dollar is picking up some traction, Stretch says he is minded towards fading near-term GBP/USD rallies.
For those watching levels, he says a close below and strong support at 1.2799 would open the way for an extension towards 1.2733, as this level represents the 38.2% Fibonacci retracement of the year-to-date range (1.2300-1.3434).
The big dollar is meanwhile in retreat as investors are some of the previous day’s exuberance.
Sure, Trump remains a pro-Dollar trade; however, markets will enter a wait-and-see mode as campaign rhetoric might not quite match reality.
Would Trump want to risk boosting inflation by diving headfirst into a policy of blanket import tariffs? He might not.
The uncertainty is enough to cool some near-term enthusiasm on the Dollar and allow other currencies to reclaim some lost value.
An original version of this article can be viewed at Pound Sterling Live
