Yesterday, the pound weakened against the dollar. U.S. economic data supported demand for the dollar, while UK figures came in slightly below expectations.

Starting with the United States, the ADP report shows how many new jobs were created by private businesses. In October, employment increased by 86,000, compared with the forecast of 67,000. The trade deficit, which represents the difference between the value of goods and services the United States imports and exports, narrowed to $105.0 billion, compared with expectations of $107.9 billion. This gives the Federal Reserve little reason to refrain from further interest rate increases.

UK figures were less encouraging. Business activity is measured using the Purchasing Managers' Index (PMI), which is based on surveys of companies. A reading above 50 indicates expansion. The UK Services PMI came in at 52.8, compared with the forecast of 53.1, while the Composite PMI stood at 52.9, against the same forecast of 53.1. The difference was relatively small, but it was enough to deprive the pound of support.

Today's main event for the pound is the Bank of England's interest rate decision. The market is almost certain that the rate will be raised to 4.0% from 3.75%. This outcome has already been priced in, so the rate increase itself is unlikely to have a significant impact on the exchange rate. The details will determine the pair's direction.

The first important factor is the voting breakdown within the Monetary Policy Committee. Seven of the nine members are expected to vote in favor of an increase, compared with only three in the previous meeting. If the number of policymakers supporting tighter monetary policy is higher than expected, this will demonstrate the regulator's determination and support the pound. If the number is lower, sellers will have a reason to put downward pressure on the exchange rate.

The Bank of England's Monetary Policy Report is equally important. It contains forecasts for inflation and economic growth, which will help clarify how long the regulator is prepared to continue raising interest rates. Bank of England Governor Andrew Bailey will speak afterward, and his comments on future policy decisions could shape market sentiment. If the central bank maintains its hawkish stance, the pound will receive support and may consolidate above current levels.

Momentum

The 1.3501 level is important for further upside movement, and the current price is just 12 points below it. If the pound consolidates firmly above this level, the next targets will be 1.3527 and then 1.3549. The Bank of England's decision could provide the necessary catalyst, particularly if the number of votes in favor of a rate increase exceeds expectations. Therefore, the upward scenario is considered the primary one.

For a downside move, attention should be paid to 1.3476. A break below this level would open the way toward 1.3454 and 1.3428. Yesterday's dollar strength and relatively weak UK data support this scenario. However, it faces resistance from the fact that the rate increase has already been priced in and the market expects the Bank of England to maintain a hawkish tone. This possibility should not be dismissed, but it is considered less likely.

Mean Reversion

The upper reference level is 1.3504, while the lower one is 1.3465. The upper level is only three points above the breakout level of 1.3501. This proximity means that a genuine breakout cannot be distinguished from a false breakout based on a single price test.

If the price breaks above 1.3501, reaches 1.3504, and then quickly falls back below 1.3501, this would indicate a reversal rather than a confirmed breakout. In this situation, it would be more reasonable to wait and observe the subsequent price action.

The lower level of 1.3465 lies along the downward path between 1.3476 and 1.3454. If the decline reaches this level and the price quickly rebounds above it, this would also indicate a reversal rather than a continuation of the breakout.