Despite a five-day rally, traders remain cautious about turning bullish on the British pound.
Weekly IMM futures data shows an increase in short positions, yet rising daily open interest suggests new long positions have been added since August 5, when GBP/USD hovered near 1.33. These longs likely expanded after the Bank of England’s hawkish rate cut on Thursday, which lowered rates to 4% amid a divided Monetary Policy Committee.
While inflation concerns argue for a slow easing of BOE policy, a weakening labor market could prompt further rate cuts. Market pricing reflects this uncertainty, with IRP data showing an 80% chance of another 25 bp cut by the end of 2025 and only one cut projected for 2026. Economists expect the UK unemployment rate, due Tuesday, will remain at 4.7% through June, but a CIPD survey reveals hiring intentions have dropped to pandemic-era lows, and wage growth is slowing.
Across the Atlantic, the Fed faces persistent inflation. July’s CPI is expected to rise to 2.8% annually, above the 2% target, and could accelerate further due to new tariffs, especially on Chinese imports.
Given these dynamics, pound bulls should tread carefully.
Option markets reflect caution, with pound puts slightly
favored. A close above 1.36 could signal bullish momentum, while
a drop below 1.33 would be bearish.
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(Robert Fullem is a Reuters market analyst. The views expressed
are his own.)