GBP/USD pulls back from 1.3775, remains steady at one-month highs

• The sterling trims gains after hitting a one-month high at 1.3775.
• Pound rally accelerates with risk appetite hurting the USD.
• GBP/USD, above 1.3750 resistance, heading towards 1.3820/25 – Scotiabank.

The British pound has rallied on Friday to break above 1.3750, reaching 1.3775 for the first time since mid-September. The pair has appreciated about 0.65% in the best daily performance over the last few weeks and is set to close the week with a substantial advance after having appreciated nearly 2.5% so far in October.

The pound appreciates with the US dollar losing momentum

The sterling has extended its recovery for the second consecutive week, buoyed by a higher appetite for risk, which is hurting the safe-haven dollar. The major stock indexes are closing the week on a strong note, buoyed by better than expected quarterly earnings in the financial sector, which have eased fears about surging inflation and supply chain disruptions.

The Dow Jones Index appreciates 0.8%, with the S&P 500 0.5% higher and the Nasdaq technical index 0.27% up at the time of writing. Goldman & Sachs has reported a 66% increase in the third quarter’s profit, beating expectations and extending optimism following upbeat earnings by JP Morgan, Citigroup, Wells Fargo and Bank of America released earlier this week.

Beyond that, higher expectations the Bank of England might be the first of the world’s major central banks to hike interest rates are also increasing demand for the GBP. With inflation accelerating at levels almost twice the Bank’s target for price stability, BoE officials have started to openly suggest the possibility of accelerating the monetary policy normalization plan.

On the macroeconomic domain, US retail sales increased 0.7% in September, twice the 0.4% increase expected by the markets. These figures, however, have been boosted partially by higher prices in auto dealers as the shortage of chips is boosting auto prices.

GBP/USD aiming towards 1.3820/25 after eroding the 1.3750 resistance – Scotiabank

From a broader perspective, the FX analysis team at Scotiabank sees the pair heading towards the 1.3820/25 area:  “We spot minor resistance at 1.3750, with gains through here targeting 1.3820/25.”

Technical levels to watch