Sterling continued its ascent on Wednesday as the post-Trump inauguration environment remained less austere than expected, though further gains may be elusive if the BoE guides to a less hawkish policy path at its Feb. 6 meeting.
UK fiscal uncertainties have also abated amid falling global yields, allowing GBP/USD to distance itself from its year-to-date low by 1.21.
Futures show markets expect UK rates to remain well above those in other major economies, supporting the pound versus the euro, Aussie and the Canadian dollar. However, the Fed is expected to keep rates steady until June while the BoE cut twice during that period, eroding the pound's yield advantage and potentially hindering further GBP/USD gains.
With the UK economy feeling the deleterious effects high yields, the BoE appears ready, as long as falling inflation permits, to ease to stimulate growth, which could put the Jan. 13 low at 1.21 in focus.
The recent break above the 10-DMA at 1.2260 is helping develop a base, but the real test will be near the falling 30-DMA at 1.2447 and key Fib at 1.2455. A rise above these levels will put the daily cloud, spanning 1.2665-1.2794, and the Dec. 6 trend high at 1.2811 in focus.
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(Paul Spirgel is a Reuters market analyst. The views expressed are his own)
((paul.spirgel@thomsonreuters.com))
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