GBP/USD Range Bound, Upside Risk Remains

According to Scotiabank strategists, the British pound is likely to remain rangebound against the US dollar in the short term, but with a tilt towards upside risk. The bank's analysis suggests that while cable remains within a well-defined band, the balance of risks is skewed in favor of the pound. This is due to factors such as relative central bank policy expectations and improving UK economic data.

The pound has been consolidating against the dollar for several weeks, with the pair trading near recent lows and resistance at the top of the range. Scotiabank attributes this to a tug-of-war between supportive UK fundamentals and persistent US dollar strength. The Bank of England's cautious stance on rate cuts, contrasted with the Federal Reserve's more data-dependent approach, has kept both currencies in check.

However, Scotiabank's upside bias is rooted in several factors. First, the pound's undervaluation on a purchasing power parity basis provides a medium-term floor. Second, UK economic data, particularly in the services sector, has shown surprising strength. Third, political stability following the recent general election has improved investor sentiment toward UK assets.

On the technical side, the pair has repeatedly held support at key moving averages, suggesting that sellers are losing momentum. A break above the top of the current range could trigger a short-covering rally, potentially targeting higher levels.