The Pound Sterling (GBP) is up 0.2% against the US Dollar (USD) and a mid-performer among the G10, its gains reflecting a weaker USD rather than any improvement in the UK’s domestic situation, Scotiabank's Chief FX Strategists Shaun Osborne and Eric Theoret report.

Fundamentals deteriorating as markets reprice dovish BoE following jobs Tuesday

"Fundamentals have deteriorated with a notable pullback in UK-US spreads, narrowing from their recent two year highs in a pullback that warrants attention. The outlook for relative central bank policy is shifting and rates markets are pricing in renewed dovishness at the BoE following Tuesday’s labor market disappointment."

"The data were acknowledged by Gov. Bailey as he specifically highlighted the softness in the labor market and the need to balance this against above-target inflation. Markets are now pricing in nearly one full 25bpt by February, up nearly 10bpts over the past week."

"The RSI is also pulling up from moderately bearish levels in the lower 40s and drifting back toward the neutral threshold at 50. Recent support was clearly observed in the mid-1.32s, and resistance appears limited ahead of 1.34 and the 50 day MA at 1.3476. We look to a near-term range bound between 1.33 and 1.34."