GBP up modestly, recovering a portion of Wednesday losses - Scotiabank

Pound Sterling (GBP) is up modestly, entering Thursday's NA session with a 0.2% gain as it recovers a portion of Wednesday's politically-driven losses, Scotiabank's Chief FX Strategists Shaun Osborne and Eric Theoret report.

GBP up modestly on relief over Reeves.

"The UK's final services PMI came in slightly better than expected at 52.8 (vs. 51.3 exp. & prev.). Uncertainty around the future of Chancellor Reeves created a panic on Wednesday, as market participants expressed concerns about the UK's commitment to fiscal responsibility and investors sold gilts in a manner the recalled the panic of 2022."

"The situation appears to have settled - for now - and markets are breathing a sigh of relief at the government's renewed commitment to Reeves. Shor-term yield spreads have remained steady, as Wednesday's turmoil largely impacted yields at the back end of the curve. Rate expectations have also remained steady, with markets pricing about 22bpts (~90%) of easing at the next BoE decision on August 7."

"The multi-month trend remains bullish but the momentum signals are hinting to exhaustion and an overall moderation in the trend as the RSI has failed to confirm the latest highs in spot (negative divergence). We continue to highlight the importance of the 50 day MA as a critical source of medium-term support, and see near-term support closer to the 1.3600/1.3620 area. Recent gains have struggled above resistance in the mid/upper 1.37s."