Since the Pound's low point on 10th September (Cable down at 1.6059) it has enjoyed a remarkable recovery, particularly against the Australian and Japanese currencies and after a stay of just 2-3 weeks at or near the bottom of our major Currency rankings, it is now back up to number three (out of 10), behind the US & Canadian Dollars.  This is a trend-based ranking, designed to iron out short-term volatility. Even so, we will take a look at the evidence to assess establish whether Sterling's recovery is solidly based.

The blame for Sterling's demise (particularly in late August & early September) was a result of the sudden uncertainty surrounding the outcome of the Scottish referendum.  The possibility that Scotland would vote to leave the UK was well off many participants radar until opinion polls suddenly indicated a late surge in favour of a "Yes" to independence.  The Pound had actually peaked against the US Dollar at 1.7186, but for the first 6 weeks or so, the retreat could be explained as a purely "corrective" move, as it did against most of the other major currencies.  It was only when it accelerated down through 1.6539-42 (late August low / rising 260 day (1 year) moving average) which coincided with breaks of major support levels against several other major Currencies, notably the Australian Dollar and Japanese Yen, did that underlying bullish Sterling view cease.

Since that low point on 10th September and the “No” result to the Scottish referendum just over a week later, Sterling’s outlook has significantly changed for the better.  It actually retains a potentially bearish structure against the US Dollar (and to a lesser extent against the Canadian dollar) over the medium-term, but looks set to continue retracing the 2 month 1.7186-1.6059 US Dollar decline (and 1 month 1.8517-1.7543 Canadian Dollar decline) over coming weeks.  Against the other seven major currencies (EUR, JPY, CHF, AUD, NZD, NOK & SEK) Sterling’s trend is already bullish, hitting new highs, and this is favoured to continue doing so over coming weeks.