UK home makeover leaves sterling wanting
It might take more than a solid batch of UK home prices data to restore the confidence of sterling bulls.
The 0.3% September gain was the third monthly advance while the year-on-year rise marked the fastest annual rate of increase since November 2022, providing signs that private-sector financials are improving.
The only problem with the data, from the perspective of sterling bulls, was that it wasn't as strong as forecast.
The data might support Bank of England Huw Pill’s view,expressed last week, that future rate cuts should be measured, though Governor Andrew Bailey said in a recent interview that the pace of rate cuts may quicken.
There are other troubling signs for cable bulls. According to Citibank's economic surprise indexes, the U.S. economy has been improving since the middle of August while UK data prints have generally lagged expectations.
There are also uncertainties around the Middle East conflict, upcoming U.S. elections and shape of the UK budget to be released Oct. 30 that may prevent investors from adding to already long pound exposures.
According to the latest CFTC report, speculative long pound positions increased to 93,765 from 86,992 in the week ending last Tuesday, just prior to Bailey’s interview.
The options market clearly sees a risk that cable could slide beneath the key 1.30 psychological level, with one-month skews the most pound bearish since June. A close beneath that level would target price congestion near 1.28.
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(Robert Fullem is a Reuters market analyst. The views expressed are his own.)
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