• The pound hits resistance at 1.1400 after a 300-pip rally.
• News of a U-turn on the UK fiscal plan boost the cable.
• GBP/USD seen between 1.00 and 1.10 over the coming months – UBS.

The pound seems to be taking a breather as the impressive 300-pip rally from the 1.1060 area has found sellers at 1.1380 before pulling back to the lower range of 1.1300. The pound remains positive on daily charts after having appreciated beyond 3% over the last two days.

Hopes of a U-turn on the UK fiscal plan have boosted the pound

News reporting that the UK Government might be discussing increasing corporation tax next year, thus reversing the mini-Budget that roiled markets last month has been welcomed by investors.

Furthermore, the Financial Times reported on Wednesday that the Bank of England might have agreed privately with lenders on the possibility of extending bond purchases beyond Friday, the day announced as the deadline for the emergency plan. This has contributed to ease negative pressure on the cable.

In this backdrop, the market has overlooked the gloomy macroeconomic data released on Wednesday. National statistics data revealed that UK economy contracted at a 0.3% pace in September, against expectations of a flat performance, on the back of a 1.6% slump in Manufacturing production.

GBP/USD seen between 1.00 and 1.10 in the coming months – UBS

From a wider perspective, FX analysts at UBS see the pair capped below 1.10 over the next months:  “With markets still concerned about the viability of the government’s fiscal plans, we think the pound will likely remain volatile, trading in a range of 1.00-1.10 against the US dollar over the coming months (…) Worries over the financial stability of the UK is also feeding into broader market risk aversion – which is also positive for the US dollar.”

Technical levels to watch