In late September, the British pound reached its highest level against the US dollar since early 2022. At that stage, the currency was up over 5% YTD against the dollar (i.e. in 2024). Reflecting that strength, most GBP trading models by then (late September) had reached SELL: That is, technically the currency was overbought, it was also over-owned, while sentiment was widely bullish.
Then, like many non US currencies, the pound sold off sharply over coming weeks as Trump’s chances of victory increased (as shown by the sharp shift in betting markets in October). A Trump victory meant that a tariffs package would be implemented early on in his Presidency, which was therefore priced into currency markets (hence strong dollar).
Since then, therefore, the pound has pulled back to the lower end of its trading range. That range, as shown in fig 1, is a rising channel and has been in place for most of the year. Of late, Sterling has found itself near the lower of that channel (fig 1). The question is, therefore, will the channel support remain intact.
Models are now more supportive – given that recent GBP weakness. In the medium term GBP is now oversold (although not in the short term, see figs 1b & 1c); positioning is flat/NEUTRAL from SELL in late September (fig 1a); while sentiment is mid-range. As such, the market setup is somewhat mixed, and therefore likely to be influenced by macro and policy surprises over coming weeks.
We assess the UK macro (growth, inflation and policy rates) in our key ‘Global Macro’ publications – available via the website: Click HERE
All in all, though, GBP currently sits at an interesting juncture: near the lower end of its price channel, mixed on short-term vs. medium-term technicals, and facing an increasingly uncertain macro backdrop.
Fig 1: GBP-USD candlestick futures, shown with 50 & 200 day moving averages
Fig 1a: Net speculative positioning (no. of contracts) vs. GBP spot price
Fig 1b: GBP short term ‘technical’ scoring system vs. GBP-USD
Fig 1c: GBP medium term ‘technical’ scoring system vs. GBP-USD
