Sterling rebounded on Friday as strong UK nL8N2MG2EL flash PMI and sliding Treasury yields US10YT=TWEB offset rising global COVID cases, but the pound faces an uncertain outlook ahead of next week's Fed meeting.
The PMI data indicated that the lifting of UK COVID lockdowns released pent-up demand, lifting expectations of BoE asset purchase tapering and higher rates and helping sterling put Thursday's low of 1.3825 in the rear-view mirror.
However, global growth, and central bank narratives remain opaque after the Bank of Canada moved to taper, while the ECB has pledged to quicken the pace of its asset purchases.
This divergent view puts significant focus on the Fed's April 28 meeting, with FOMC members upbeat about the U.S. recovery -- a view backed up by strong U.S. PMI nL1N2MG17D on Friday -- but determined to keep policy accommodative through transitory rises in inflation.
Should the Fed remaincautious about asset purchases and rates, sterling gains my be capped ahead of its 1.4240 high, as the UK is likely to hold off on any adjustments, at its own May 6 MPC meeting, as it awaits further evidence of a lasting UK and global recovery.
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