- Short GBP, with the net short positions rising over the past month.
- The Bank of England is a growing risk.
GBP/USD is trading just below the 1.2300 handle having traded between 1.2283 and 1.2346 on the day on a week that holds little from the UK in the way of economic data risks. However, Brexit remains a thorn in the side of Sterling with plenty of speculative shorts moving-in given the number of risks associated with the uncertainty of the saga.
“While we have seen a compression in the sterling risk premium, the speculative community remains short GBP, with the net short positions rising over the past month,” analysts at ING Bank warned, adding, “we don’t disagree with the ongoing build-up in speculative shorts as (a) no risk premium is currently priced into sterling; (b) we look for more GBP downside once the election campaign kicks in.”
Dollar unfazed by Fed
With respect to the US Dollar, there is unlikely to be any pause in the ongoing trade tensions between the US and China which the Dollar is directly affected and firms on safe-haven flows. At the same time, the two 25bps interest rate cuts by the Fed this quarter have proved insufficient to deter US Dollar investors which are avoiding riskier asset classes making the downside case for GBP/USD compelling as well.
Lastly, the Bank of England is a growing risk. “Despite the pause in the global dovish re-pricing of market expectations of interest rate cuts by major central banks, the market priced in more cuts for the Bank of England after monetary policy committee member Michael Saunder’s comments that a rate cut could be on cards even if a no-deal Brexit is averted,” analysts at ING Bank explained and argued that with risks clearly skewed to rate cuts rather than hikes, sterling should not expect much support from the BoE.