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The British pound is expected to rise against the dollar for four consecutive days, and the UK's economic recovery in September is stable

Oct 26, 2021 10:52

On Tuesday (October 5), the pound against the US dollar rebounded more than 40 points from the European morning low and climbed to a new daily high of about 1.3625 in the past hour.


After falling to the 1.3585 area during the session, the pound against the dollar attracted new buying on Tuesday and rose for the fourth consecutive trading day. As the stock market showed signs of stabilization, the US dollar gave up some of its intraday gains. This is also seen as a key factor in pushing the currency pair back to the multi-day top touched in the previous trading day, but any meaningful positive trend still seems elusive.

The market expects that the Fed will begin to reduce its stimulus measures and raise interest rates during the large-scale epidemic in 2022. This expectation may continue to promote the US dollar. In addition, concerns that the continued surge in energy prices will trigger inflation and derail the global economic recovery may further consolidate the relative safe-haven position of the U.S. dollar. This, combined with the ongoing fuel crisis in the UK, may limit the pound's gains against the dollar.

After Brexit and the COVID-19 crisis, the supply chain in the UK has become extremely tense due to the shortage of truck drivers. Last week, panic buying of fuel triggered chaos in major cities, forcing the government to send troops to gas stations to deliver gasoline and diesel. This, in turn, may prevent the bulls from betting aggressively and curb the uncontrolled gains of the pound against the dollar in the absence of relevant market economic data in the UK.

In terms of economic data, the UK service industry PMI in September was revised up from 54.6 to 55.4. The final value of the composite PMI rose from 54.8 in August to 54.9 in September. This is the first time since May that there has been no decline, and the initial value was 54.1.

Although the data represents the overall strong growth of the company, shortages of employees, raw materials and transportation have caused the growth rate of new orders to hit the lowest rate since the beginning of 2021 before the anti-epidemic blockade was lifted.

IHS Markit said that the data have not fully reflected the impact of the UK fuel crisis and the end of the month's energy price surge on inflation.

Market participants are now looking forward to the US ISM service industry PMI that will be announced in the North American market in early trading. The dollar bulls will further gain clues from the scheduled speech of Fed Governor Quarles and US bond yields, which, combined with broader market risk sentiment, may bring some trading opportunities for the pound against the dollar.

The upper resistance level focuses on 1.3687, 1.3762, 1.3844, and the lower support level focuses on 1.3602, 1.3572, 1.3538.

(Daily chart of British pound against the U.S. dollar)

At 19:38 GMT+8, the pound was quoted at 1.3631 against the dollar.

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