The pound strengthened against the US dollar following the US elections. The Democrats gained control of both chambers of Congress, changing the balance of political power in Washington. The Democrats will not be able to pass their own legislation without the president's signature, as overriding a veto requires a two-thirds majority, which they do not have. This means that both sides face certain limitations, and the market interpreted this as a reason to reduce exposure to the US dollar.
However, the weakness of the US currency could prove temporary. Foreign policy remains in Trump's hands. He launched the war against Iran without congressional authorization and could take similar action again if he chooses. GBP/USD is likely to remain sensitive to these developments, and further gains in the pound will depend on a stable situation in the Middle East.
Today, attention will shift to UK economic data. The final Services Business Activity Index and Composite PMI for October will be released. According to forecasts, both indicators will remain in line with their preliminary estimates, at 53.1. To put these figures into perspective, it is worth recalling September's results. At that time, the Services PMI stood at 52.1, while the Composite PMI came in at 52.0. Therefore, the preliminary October data had already shown a notable improvement, reaching their highest levels in eight months. Confirmation of these figures would indicate that the UK economy is holding up better than it did at the beginning of autumn, supporting the case for a tighter Bank of England monetary policy. The market has almost fully priced in a rate hike at tomorrow's meeting, from 3.75% to 4.00%.
It is also worth noting that the manufacturing sector has already delivered positive results for traders, with the Manufacturing PMI rising to 52.8 in October from 51.9 in September. If the services sector also meets or exceeds expectations, the overall picture will be balanced, with both key sectors showing strength. A stronger-than-expected reading would provide additional support for the pound and help GBP/USD consolidate its recent gains. Conversely, a disappointing result would call the recent rally into question. The weakening of the US dollar following the US election results provides a favorable backdrop for pound buyers, but the direction of the pair will be determined primarily by UK economic data.
MomentumThis strategy is based on breakouts. The idea is to wait for the price to move beyond a key level and consolidate above or below it. If the price consolidates above 1.3474, the pound could rise toward 1.3492 and 1.3512. In the morning, the price briefly moved above this level but failed to hold there. Therefore, a single test of the level is not sufficient; confirmation through consolidation is required. If the price consolidates below 1.3449, selling pressure on the pound could push it toward 1.3428 and 1.3397. The price is currently closer to the upper level, but it would be premature to draw conclusions before the UK economic data are released, as the move could easily turn out to be a temporary spike.
This strategy is based on the expectation that the price will return to its average value after moving too far away from it. The key levels here are 1.3487 and 1.3428. Selling opportunities are considered near the upper level, while buying opportunities are considered near the lower level, with the expectation that the price will retrace toward the middle of the range. The upper level is above the recent high, which the price failed to reach. If the data support further gains, the price could reach the upper level and stall. Conversely, weaker-than-expected data could bring the price down to the lower level, providing a potential point for the pound to rebound.