The pound is starting the session with a decent recovery against the dollar, but the overall outlook remains challenging.

Friday's US labor market report came in significantly stronger than expected. Nonfarm payrolls increased by 165,000 in October, compared with expectations of 65,000, while the previous month's figure stood at 60,000. The unemployment rate fell to 4.1%, while monthly wage growth reached 0.4%, against expectations of 0.3%. Rising wages and strong job creation indicate that inflation in the United States remains elevated, leaving the Federal Reserve with little reason to ease monetary policy. The market once again considers a rate hike in December the most likely scenario.

This was enough to outweigh the support provided by the Bank of England. Last week, the British central bank raised its interest rate to 4.00%, with the vote split at 9-0-0. All nine Monetary Policy Committee members voted in favor of the increase, compared with just three in September. This represents a significant shift, but the pound failed to strengthen. The decision had already been priced in, while the dollar received a much stronger boost from the US data at the same time.

The market is now looking for further signals, but no UK economic data are scheduled for release today. The only notable event is an evening speech by Bank of England Governor Andrew Bailey. However, he is unlikely to provide any major new insights, as he already outlined his position following the policy meeting. At the time, he said that a second rate hike was more likely than not, provided energy prices returned to their previous levels. Oil prices are currently declining amid expectations that the war with Iran could end soon. Bailey also noted that much of the inflation surge had already been priced in. The market currently assigns a 50% probability to a rate hike in December, and simply repeating his previous comments would not be enough to change expectations.

If Bailey adopts a more hawkish tone this evening than he did last week and again describes a second rate hike as likely, the pound may have a chance to stabilize. However, without such signals and a noticeable weakening of the dollar, the pound will remain dependent on the US currency and is unlikely to gain enough momentum for a sustained recovery.

Momentum

This strategy focuses on the continuation of a price movement following a breakout. A breakout occurs when the price moves beyond a certain level and consolidates there, meaning that it holds above or below that level rather than moving back across it. The price is currently trading very close to the upper level of 1.3379, while the lower level of 1.3345 is 33 points away.

The 1.3379 level is particularly important for an upward move. If the pound rises decisively above this level and consolidates there, it will signal that buyers have gained the upper hand. This would open the way toward 1.3408 and then 1.3434. The first target is approximately 30 points away, while the second is further away, and the price may pause or retrace along the way. Such a move is possible if the dollar weakens or Bailey adopts a more hawkish tone this evening. However, since the price is already so close to the level, beginners should be particularly careful to wait for a confirmed consolidation above it rather than entering a trade on the first test. An upward move is considered less likely and would more likely represent a rebound following the decline than a trend reversal.

For a downward move, attention is focused on 1.3345. If the price breaks below this level and consolidates beneath it, sellers will remain in control. The next targets are 1.3320 and 1.3298. This is considered the primary scenario. It is supported by the strong US employment report, doubts about a December rate hike by the Bank of England, and weak domestic economic conditions, particularly in the housing market. The main factor working against this scenario is that the price has already rebounded from lows near 1.3342 and is now trading higher. In addition, the pound retains some hawkish support following the Bank of England's decision.

Mean Reversion

This strategy is based on the opposite idea. Sometimes the price moves beyond a level but fails to hold there and quickly returns. This is known as a reversal back through the level, and it differs from a breakout because the price does not consolidate beyond it. It is impossible to distinguish between the two based on the first test alone, so beginners should avoid rushing into a trade. Instead, they should wait for the price to move beyond the level first and then return back across it.

The upper reference level is 1.3389, while the lower one is 1.3356. The upper level is just 10 points above the breakout level of 1.3379. If the price reaches 1.3389, loses momentum, and turns downward, this would indicate a failed move above the level and align with the primary bearish scenario. The lower level of 1.3356 is 11 pips above the breakout level of 1.3345. If the price falls to this level and quickly moves back above it, this would also indicate a failed move below the level. However, if 1.3356 is broken without a subsequent rebound, the Momentum scenario comes into play. Therefore, it is better to observe the initial price reaction at either level before making a trading decision.