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The pound to New Zealand dollar (GBP/NZD) is settling higher following the frantic selloff of October.
GBP/NZD zoomed to 2.3520 last month before tripping over itself and landing in a heap at 2.2806. It's now in the process of dusting itself off.
This attempt to regain composure is highlighted by the mini rally towards the nine-day exponential moving average (EMA) at 2.3042 that is underway.
In fact, the current price action is quite illustrative of how our Week Ahead Forecast model works:
We tend to view big divergences in an exchange rate away from the nine-day EMA as indicative of a move that's gone too far. (We think it offers a more useful indicator of oversold conditions in shorter-term timeframes than the RSI does.)
What we saw last week was a classic case of GBP/NZD falling well beyond the nine-day EMA, a momentum line that an exchange rate likes to hug. The idea is that when it goes too far, it will tend to come home.
As the daily chart above shows, that homing tendency is what's happening right now:
So looking forward, there is a chance this recovery action can continue in the coming week, particularly if Thursday's Bank of England policy update turns out to be supportive of the pound.
The decision is the highlight of the week for sterling, and there is a 50/50 chance that the Bank decides to cut interest rates.
However, if the Bank chooses not to cut interest rates on Thursday it will almost certainly cut them in December, with markets pricing a cut before year-end at 100%.
So, if we get a cut on Thursday we skip in December, and if we skip on Thursday we get that cut in December. In short, there's not much scope for a meaningful repricing in 2025 rate cut bets left, which is a supportive observation for the pound.
After all, that big fall we saw in GBP/NZD and other GBP exchange rates through the second half of October came on the back of the market pricing in that pre-year-end rate cut. If that recalibration is over there is scope for the pound to rebound.
That being said, there is still the small matter of the November 26 budget to navigate, which will see Chancellor Rachel Reeves spank us with more tax hikes.
This could pose a significant headwind to growth and make for a fundamentally unfriendly setup for the pound.
So for now, GBP rebounds should be shallow affairs.