The pound ended last week under pressure from the dollar, which strengthened after hawkish remarks by two Federal Reserve representatives. The key speech was by the president of the Federal Reserve Bank of St. Louis, Alberto Musalem. He called for another rate increase in the near term and explained this by saying that inflation remains too high and Fed policy still stimulates the economy. In his view, the earlier the step is taken, the lower the risks will be.

Tom Barkin of the Richmond Fed added that the question now is not the direction of policy but the pace, and that the boom in investments in artificial intelligence is accelerating inflation. These words came after a week when the dollar was losing ground because weak household incomes and a low savings rate weighed on the currency. Now the picture has changed, and the dollar has received new support. The background for such statements has been set. The overall personal consumption expenditures index in September was 3.6% against the Fed's 2% target, and at the October 28 meeting the rate was kept in the 3.75–4.00% range with a vote of ten to two.

The pound is in a tougher position in this situation because market attention is focused on the Bank of England meeting on November 5, where a rise from 3.75% is expected. But even that expectation does not offset the dollar's strengthening, which rests on the Fed's hawkish rhetoric.

Today the UK manufacturing purchasing managers' index for October will be released for the pound, and forecasts expect 52.8 points, exactly the same as the preliminary estimate. To understand how important this is, it helps to recall where the figure came from. In September, the index was 51.9 points, and the preliminary October estimate released on October 23 came in much stronger than the expected 51.8 points, at 52.8. This survey of purchasing managers shows whether manufacturing is growing, and a value above 50 indicates expansion. An increase of almost a full point in a month was notable, and now the market needs confirmation that it was not accidental. I believe strong industrial figures can help the pair quickly recover losses, and if the result matches the forecast, it will remain in a zone of cautious waiting.

Momentum

For the pound, the price is now at 1.3402, and only two pips remain to the upper breakout level at 1.3404. That is very close, so use caution, since a first touch is not considered a breakout. If the pair consolidates above, it may reach 1.3430 and then 1.3467. Such a move requires strong UK industrial figures and a calm dollar. Below the reference is 1.3374, twenty-eight pips from the price. Overnight, the pair fell to 1.3378 but did not reach the level. A downward breakout with confirmation could lead to 1.3346 and 1.3324, and this direction looks more likely if the dollar continues to rise after remarks by Musalem and Barkin. While the pair is holding at the upper level, I am looking at both scenarios, but the very close distance to 1.3404 requires patience.

Mean Reversion

For the pound, the upper reference 1.3411 sits seven pips above the breakout point 1.3404, so special caution is needed. If price passes 1.3404, reaches 1.3411, and confidently consolidates above, this is a breakout, and selling is not allowed. But if it briefly poked above, failed to hold, and quickly returned below 1.3404, the reversal works, and I consider selling with a stop above the highest point of the failed attempt. Since the price is currently two pips from the breakout level, I would skip the first reaction in this zone and wait for clarity.

The lower reference, 1.3384, sits ten pips above the breakout level of 1.3374. Here, I look for long positions if price briefly falls below 1.3384, finds no continuation, and returns above. I place the stop under the lowest point of the failed attempt. But if it passes 1.3384 and calmly holds below, then movement toward the breakout level 1.3374 begins, and buying there is not allowed. Overnight, the pair fell almost to this zone and bounced, so buyers showed up here. The dollar is pressing now, so I expect any rebound to be modest, and I would especially protect stops around the release of business activity indices.