Pound Sterling Holds Key Support Near $1.3375

The immediate economic backdrop is mixed. The dollar has lost some momentum, with Scotiabank describing a bearish reversal since mid-October, but risk aversion has kept safe-haven currencies such as the yen and Swiss franc in favour as technology-sector worries and geopolitical tensions weighed on sentiment. That has limited sterling’s ability to extend gains even after last week’s bullish weekly reversal, a pattern the bank says remains technically constructive.

The case for a higher pound rests on the view that the post-US inflation rebound was more than a one-day reaction. Scotiabank’s Shaun Osborne and Eric Theoret said intraday price action has softened, but the pound still shows “solid, bullish momentum” on daily and intraday oscillator studies, with the key technical levels now at 1.3375 on the downside and 1.3430/35 on the upside. The bank said a weekly “outside-range” reversal after the 14 October US CPI release supports the idea that spot can climb back to the top of the range.

But the upside thesis is not free of macro risks. UK fiscal policy is the biggest near-term variable, with investors focused on the 28 October Budget and whether the government can present credible spending and funding plans without further straining gilt markets. Pressure on fiscal headroom and yields has kept traders cautious, particularly as the Bank of England balances still-sticky inflation against signs of softer growth. The CBI survey offered some improvement in business optimism, but new orders remained soft and selling prices rose, a combination that underscores why sterling has struggled to build a one-way trend.

That policy uncertainty is why the pound may remain rangebound even if the dollar continues to weaken. Market expectations now centre on the possibility that the BoE keeps rates unchanged through most of 2027, although a November hike has become a growing risk after stronger growth and an inflation peak of 3.7% lifted concerns about persistent price pressure. Higher-for-longer UK rates would normally support sterling, but only if growth holds up and the budget does not reinforce fears over debt supply or fiscal loosening.

For currency investors, the setup is straightforward: losing $1.3375 would invite a deeper short-term setback, while a move back above $1.3430-$1.3435 would strengthen the case for a retest of $1.3650-$1.3675. Until then, sterling remains a macro trade driven less by momentum than by the interaction of US dollar weakness, UK fiscal credibility and the market’s view on BoE policy.