The Pound Sterling (GBP) is soft and down a fractional 0.1% vs. the US Dollar (USD), extending its modest pullback from Tuesday’s multi-month high, Scotiabank's Chief FX Strategists Shaun Osborne and Eric Theoret report.

Narrowing UK-US spreads weigh on GBP fundamentals

"Domestic releases have been limited to second-tier inflation expectations data, which came in largely as expected in the mid/lower 3% range. Fundamentals have softened somewhat, with a notable narrowing of UK-US yield spreads. GBP/spread correlations are weak however, and sentiment appears to be dominating as we note the pound’s current tight correlation to risk reversals."

"The rally from November looks to have stalled as gains from the 1.30 have settled into a flat range roughly bound between 1.3400 and 1.3550. Bullish momentum has softened from overbought levels and the RSI is now hovering just above the neutral threshold at 50. We remain neutral absent a break below 1.3400 and note the importance of the 200 day MA at 1.3390. We look to a near-term range bound between 1.3400 and 1.3500."