Why has the British pound sterling (GBP) risen today?

At the start of today's live coverage we suggested that the Bank of England Financial Stability Report would be unable to materially shift the UK currency.

We were wrong. The Bank delivered a surprise that saw the British pound bid higher. The pound to euro exchange rate has broken above 1.2 while the pound to US dollar exchange rate has moved 0.31 pct higher to reach 1.6339.

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Why is the British pound higher today?

FX Market Alerts tell us that the surprise withdrawal of one of the stimulatory programmes at the Bank of England has whetted buyer interest in GBP:

"Sterling gets a lift from news that the BoE plan to scrap the incentives scheme to boost mortgage lending (Funding for Lending), which may seem a little counterintuitive, but which is seen to be 'net hawkish' in terms of interest rate/money supply.

"Cable is moving back towards the session highs, which topped out at 1.6345, with the target of 1.6380 from Jan very much on the cards.

"EUR/GBP has been hit lower accordingly though we see bids coming in just ahead of the lows seen in front of .8315."

Outlook for the pound sterling

Turning to the outlook, we are confident that the British currency will continue to enjoy positive momentum and support through the course of coming sessions.

The start of December will see the release of the PMI data series which could either boost the currency's trajectory or halt the rally.

Near-term targets are in reach:

"EURGBP traded lower through New York & Asia before rebounding from 0.83200 on the EUR-leg. MACD will continue pointing downwards for a daily close below 0.8385. Although we start seeing weakness in downside momentum, we keep our target at 0.8300," says Ipek Ozkardeskaya at Swissquote Research.

Luc Luyet at MIG Bank warns that for GBP/USD a strong resistance area stands between 1.6302 and 1.6381. Support is seen at 1.6258.

"In the medium-term, the break to the upside of the multi-month consolidation is positive. However, monitor the test of the strong resistances around 1.6381 (02/01/2013 high), given the deep overbought conditions."

Meanwhile, thin market conditions owing to the US holiday will keep volatility sustained in the FX markets.

The majority of G10 majors trend higher against USD, while the upside pressures on JPY crosses gain strength.

EURJPY extends gains through fresh highs, while AUD sees demand since the capital expenditures surprised on the upside in the third quarter.

Traders should expect low liquidities due to Thanksgiving holiday in US today.