The pound rebounded strongly vs the euro yesterday with analysts suspecting that sterling could be oversold

After an unsteady early session, the pound rebounded strongly from Friday’s sell off, to close 1.1% up.

  • The pound recovered steadily through the day after data revealed that the German Gfk consumer sentiment indicator dropped to 4.0 from 4.2 in October, weaker than the median forecast of 4.5, dulling demand for the single currency.
  • In addition UK business confidence rose to the highest in 18 months, according to a third-quarter survey, with 19% of executives polled saying the outlook for business is “good” or “very good,” up from 9% in the previous quarter, which stoked demand for the pound.
  • Analysts hypothesised that the pound may be considerably oversold at its current value, which does present a good opportunity for British businesses.
  • Analysts also noted two opposing arguments developing: the first is a widely held view that based on better PMI survey data there is a good chance that GDP data for Q3 will be revised up.
  • The second is the growing certainty that the BoE will announce a step up in QE at next Thursday’s policy meeting. The offsetting nature of these views may contain volatility in the approach to the November 5 th policy meeting.