Both the U.S. Federal Reserve and the Bank of England are expected to raise rates by 75 basis points next week - their respective outlooks on inflation will be pivotal for GBP/USD.
There is a growing perception in the United States, driven by recession fears, that the Fed may be approaching a period of reduced rate hikes.
CME FedWatch prices a 75 bps hike on November 2 to 3.75%-4.00% at 85.4% from 94.6% on October 19.
The odds of another 75 bps hike December 14 have dropped to 38.9% from 77.0% a week ago, a significant change.
Meanwhile, BOEWATCH prices a 75 bps hike on November 3 at 75.4% and 100 pts at 24.6%.
Aside from a hawkish BOE, sterling bulls have welcomed PM Rishi Sunak's appointment, expecting him to deliver a viable plan to repair the UK's public finances on.
UK markets are hence buoyant and sterling is stronger, though much of the recent recovery is led by U.S. markets and offshore factors.
The U.S. dollar is down 2.9% from Friday's open, while sterling has climbed 3.45%, and EUR/GBP trades 0.45% lower.
Technically, daily momentum studies, 21 day Bollinger bands, 5, 10 and 21 day moving averages all head higher, which is a strong positive set-up. 1.1634, the 38.2% retracement of the 2022 fall, is under pressure; a sustained break would target 1.2038 - the 50% retracement resistance.
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