Pound Range Trade Continues Amid Weakening Fundamental Backdrop
The British Pound (GBP) has been trading within a narrow range against the US Dollar (USD), as analysts at Scotiabank point out. According to Shaun Osborne and Eric Theoret, the pound is slightly firmer than the dollar, but its fundamental backdrop has faded since mid-July.
The strategists note that 2-year spreads have given back gains made since late June, indicating a weakening of the pound's underlying strength. However, they remain medium-term bullish on the currency, expecting it to trade within a range of 1.31-1.35 USD/GBP in the near term.
Osborne and Theoret attribute this neutral/bullish bias to the UK's improving political situation, which is reflected in the options market. They also point out that the Relative Strength Index (RSI) has found a more solid footing after last week's gains.