Cable jumped to near three-week highs of 1.3173 before retracing to 1.3125-40
Pound traders are not looking too impressed by the UK PMI data beat earlier, as the currency is struggling to build further gains despite the better-than-expected release.
The rates market has also pared back its BOE rate cut pricing to ~44% now from ~60% before the data was released so there isn't much to not like here.
However, as mentioned earlier, the data beat may have skewed the odds lower in terms of a rate cut next week, but it won't take away the fact that the meeting will still be a "live" one. I reckon therein lies the risk for the pound.
Inflation data has been subdued recently and all it takes is for a few more BOE members to be overly cautious about it and we could see a potential rate cut on 30 January.
From a technical perspective, cable buyers still have much work to do as the dust starts to settle. A firm break above 1.3150 with further resistance around 1.3170-75 remains the key levels to try and break above in order to chase a further upside extension.
Meanwhile, for any downside move, watch the 1.3100 level first before turning towards the key hourly moving averages @ 1.3073 and 1.3052 respectively.
I reckon the pound will likely sit between 1.3050 to 1.3150 ahead of the BOE meeting as buyers and sellers do battle in this region now. As PMI data looks to have failed to tip the scales, it is hard to look at a clear directional move for the time being.
But if we do see a decent rally towards 1.3170-00, I reckon the balance of risks should favour sellers going into the BOE meeting next week.
