British Pound: Sentiment offsets softer spreads – Scotiabank

Scotiabank’s team notes the Pound is fractionally weaker versus the Dollar, with fundamentals less supportive as yield spreads soften. However, sentiment is improving as markets fade earlier political concerns following PM Burnham’s arrival and stronger-than-expected construction PMI. Short-term technicals remain bullish, with expectations for medium-term gains above 1.3550 and a near-term trading band between 1.3420 and 1.3520.

Pound supported by improving sentiment

"The pound is showing fractional weakness into Thursday’s NA session with a 0.1% decline from Wednesday’s close. Data releases have been limited to third-tier construction PMI figures (44.7 vs. 40.0 exp. and 38.4 prev.), revealing an unexpectedly strong recovery in an index that remains firmly in contractionary territory."

"Fundamentals appear to be somewhat less supportive for the GBP, as we note the renewed softening in yield spreads."

"Sentiment continues to improve however, as market participants continue to fade politically-motivated concerns following the recent political transition and arrival of PM Burnham. The new PM’s commitment to fiscal responsibility appears to be much stronger than expected."

"Bullish—the RSI’s latest recovery has been somewhat more muted relative to the EUR, with current levels in the upper 50s offering a slightly less intense read on momentum."

"The local trend is bullish, given the sequence of rising lows from late June. We anticipate medium-term gains above the mid-July high around 1.3550 and look to a near-term range bound between 1.3420 and 1.3520."