Sterling has been rising steadily for the three sessions against the Dollar, as market sentiment improved after a rebound in UK banking stocks and traders citing sovereign demand for the currency.
“The market is trying to sell cable here but we keep seeing sovereign-type names on the bid,” said a London-based trader.
“Unless we get below $1.6100, I think there is a decent chance of a bounce.”
GBPUSD rose to a U.S. session high of 1.6176, 172 pips from Monday’s low of 1.6004.
Further gains in Sterling could be seen but UK banking sector exposure to the Euro zone crisis and close trade links with Europe make investors cautious. Additionally, the British economy’s health hasn’t proven to be too strong based on a recent series of weak economic data.
“Sterling’s outlook is still very closely linked to sentiment towards Europe. Ultimately the UK is so closely entwined with Europe that a crisis would certainly hit the UK,” said Lee Hardman, currency analyst at BTM-UFJ.
The Pound could be bruised after the Bank of England’s July meeting may produce less hawkish minutes tomorrow. There is speculation that the minutes will hint that interest rates will stay chained at a record low 0.5 percent. But what is more important is what policy makers will mention about quantitative easing. If they hint on further QE, to stimulate the British economy, this will help the Pound rise.