Sterling bears confront key question: How low can you go?
The question for sterling bears is how low they can push the pound before UK rate and economic fundamentals come back into focus to stabilize cable.
Sterling continued its post-election descent, falling to lows not seen since July as GBP/USD longs unwind positions amid expectations that protectionist policies of President-elect Donald Trump will keep inflation high and the dollar bid.
Despite being down 0.4% year-to-date, sterling remained the best performing major currency, notwithstanding its post-election slide of 2.7% and nearly 6% slide from its 2024 high on Sept. 26.
The September rise in sterling was driven by traders pricing in significant UK-U.S. rate divergence after the Fed's 50bp rate cut and above-target UK inflation, which was expected to keep British rates high.
While the less-dovish post-U.S. election rate reality should reprice GBP/USD lower, sterling traders now have to discern how much weakness is too much.
STIR futures still indicate UK rates are expected to land at a higher base by year-end 2025, with Fed funds projected at 3.97% and UK rates at 4.15%, which should ultimately support GBP/USD.
Nearby support at the June 27 low at 1.2613 and May 9 low at 1.2446 may represent the bottom as the post-election USD buying frenzy ebbs.
For more click on FXBUZ
GBP Chart: https://tmsnrt.rs/3URaHah
(Paul Spirgel is a Reuters market analyst. The views expressed are his own)
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