• The pound is trying to extend its recovery from 1.3000 to levels beyond 1.3100.
• A more positive risk sentiment is favoring the sterling against the US dollar.
• Longer-term, the GBP/USD remains negative, aiming towards 1.2800 – Scotiabank.

The pound’s recovery from 16-month lows right below 1.3000 seen earlier this week is struggling to confirm past 1.3100. The cable is posting gains for the second consecutive day, although it seems to have found resistance right above the mentioned 1.3100.

The cable extends gains against a somewhat softer USD

The GBP/USD is trading higher, buoyed by a brighter market sentiment on Wednesday. Positive comments about the Ukrainian peace talks and the economic stimulus announced by Chinese authorities have boosted sentiment on Wednesday, sending stock markets higher for the benefit of the risk-sensitive pound and euro.

On the other hand, the US dollar seems to be pulling back, with the investors bracing for a historical decision by the Federal Reserve. The Fed is widely expected to hike interest rates for the first time in three years aiming to bring inflation under control.

The Dollar Index, which measures the USD against a basket of the six most-traded currencies, is retreating about 0.4% after having hit intra-week lows at 98.28.

GBP/USD expected to drop towards 1.2800 ­– Scotiabank

In a longer-term perspective, the FX Analysis Team at Scotiabank sees the pound resuming its wider downtrend soon: “The balance of economic risks will also see the BoE deliver a more apprehensive hike than the Fed, with the UK economy (household spending in particular) more susceptible to the impact of higher energy and food prices resulting from the war in Ukraine (…) The GBP could aim for a test of 1.28 over the next few days/weeks on the combination of a hawkish Fed and a cautious BoE.”

Technical levels to watch