Sterling formed a base last week and closed above the pivotal 21-day moving average on Tuesday, potentially suggesting further gains.
Expectations that the Federal Reserve will keep rates higher for longer fuelled the U.S. dollar uptrend between July and October. The dollar index =USDis currently 6.2% above its 99.54 July low, so there is room for a deeper correction.
There is now a near-consensus perception that the Fed will leave rates on hold at its Nov 1 meeting, following from senior Fed officials supporting .
The CME FedWatch Tool prices an 85.4% chance that rates will remain at 5.25%-5.50% versus 53% a month ago.
The signals from the Bank Of England are less consistent.
Deputy Governor and policy committee member have conflicting views.
This suggests that yield spreads could tighten, though both central banks remain driven by upcoming data.
Technically, the rising 5 and 10-day moving averages, combined with a close above the 21-DMA, which had capped the GBP/USD downtrend, are strong positive signals.
A test of the next major resistance at 1.2442-60 is viable; 1.2442 is the 200-DMA and 1.2460 is the 38.2% retracement of the July-October slide.
A close below the 1.2195 10-DMA would however undermine the idea of a major corrective bounce.
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