The Pound to Dollar exchange rate held near 1.3325 on Friday, having retreated more than two cents from July’s high around 1.3558.
GBP/USD is still around 0.6% higher this month, but Sterling has struggled to respond to a stronger run of UK economic data.
Over the past year, the pair has traded between approximately 1.3010 and 1.3858.
Scotiabank noted that June retail sales were far stronger than expected, while the preliminary July business surveys also surprised positively.
The manufacturing PMI rose to 52.8, signalling a solid expansion, while the services index recovered from contraction territory to 51.8.
Despite the upbeat figures, the bank said “market participants are clearly not responding to fundamentals”, with political uncertainty and concerns over the UK’s fiscal position continuing to weigh on the Pound.
Attention now turns to next Thursday’s Bank of England meeting. Rates are expected to remain unchanged, but Scotiabank anticipates a hawkish hold alongside updated economic forecasts.
Markets currently price around 16 basis points of tightening by September and 32 basis points by November.
Pound Sterling could gain if policymakers strengthen the case for a rate rise at the following meeting.
The options market is sending a more cautious signal, however, with demand increasing for protection against renewed GBP weakness.
Scotiabank linked the shift to geopolitical risks and domestic political concerns, both of which have pushed gilt yields higher.
The bank’s technical outlook remains neutral.
GBP/USD has slipped below the support previously expected near 1.3350, leaving 1.3300 as the immediate level to watch.
Stronger support is located at 1.3150, with resistance around 1.3550.
Our currency coverage draws on live market data, official economic releases and published bank research.
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