The pound is rallying

The pound is rallying in early morning trade in London on Wednesday.

Sterling gained on the dollar and euro on Tuesday thanks to a weak dollar and the return of inflation prompting traders to bet against a November interest rate cut from the Bank of England. But the pound fell against the dollar and euro in Asian trade on Wednesday, reverting to type over the last fortnight.

Thankfully, sterling is staging a comeback against the dollar after starting to reduce losses at around 7.30 a.m. BST (2.30 a.m. ET). It then got a major boost from UK unemployment figures, which show unemployment remained at the near-record low of 4.7% despite Brexit.

Here is how the sterling-dollar pairing looks at just after 9.50 a.m. BST (4.50 a.m. ET):Investing.com

The pound has now also erased its losses on the day against the euro thanks to those unemployment stats. Here’s how the pairing looks at 9.55 a.m. BST (4.55 a.m. ET):Investing.com

While neither move is particularly drastic, it’s encouraging to see sterling eek out any gain against the dollar after a dreadful two weeks.

Michael Hewson, chief market analyst at CMC Markets, says in an email on Wednesday morning: “Yesterday’s move through the 1.2300 area could have the potential to see further gains towards the previous peaks just below 1.2500.

But he cautions: “A move back below 1.2260 could well undermine that scenario and argue for a move back towards the recent lows at 1.2100.”

Given sterling’s recent volatility, we are still in a precarious position.