GBP Consolidation Eyes Resistance at 1.36

The British Pound (GBP) is consolidating its recent gains near the top of its one-month and multi-month ranges, Scotiabank strategists Shaun Osborne and Eric Theoret observe.

This consolidation has price action closely tied to fading downside risk reversals, which are continuing to fade their premium for protection against downside movement. Improved UK political risk perception and slightly more constructive yield spreads support GBP/USD, according to the analysts.

The recovery is important, reflecting an overall improvement in the market's assessment of UK (specifically political) risk, offering scope for further near-term strength for the pound. The technical setup remains constructive as the GBP recovers back toward its mid-July peak in the mid-1.35s, as well as the upper end of its range since mid-February.

The analysts note the potential for additional near-term resistance closer to 1.3600 and the May peaks in the mid-1.36s. They see support in the mid/lower 1.34s, looking to a near-term range bound between 1.3450 and 1.3550.