The British Pound is finding some short-term respite against the US dollar as UK traders return after a long weekend. After hitting a fresh 20-year high on Monday, the greenback has slipped back as traders look to re-set in anticipation of the next move higher. US two-year yields continue to move higher, currently at 3.44%, while the US 2/10-year yield curve is inverted by in excess of 35 basis points. Last Friday’s speech by Fed chair Jerome Powell, where he doubled down on the central bank’s commitment to beating inflation, has given the short end of the yield curve a further boost, underpinning the value of the US dollar.

UK energy prices continue to make daily headlines as one industry after another comes forward to warn about the impending damage that sky-high prices are having. With the next UK Prime Minister set to be announced on September 5th, the new incumbent of No.10 will need to act immediately to temper price pressures and reassure the UK public that they are in control.

UK interest rate expectations continue to rise but are currently not giving the Sterling any support. Financial markets are pricing-in between 125 and 170 basis points of rate hikes this year, with an additional 50 basis points priced-in early 2023. Financial markets are currently showing a 43% chance of a 75 bp rate in September, compared to a 57% chance for a 50 bp increase.

Cable remains weak with the daily chart showing an ongoing series of lower highs and lower lows. The pair traded as low as 1.1649 on Monday before nudging back above 1.1700 but this fresh low will likely come under pressure again in the near future. Below here the March 2020 monthly low at 1.1412 comes into focus.
 

GBP/USD Daily Price Chart

(Click on image to enlarge)

Retail trader data show 78.30% of traders are net-long with the ratio of traders long to short at 3.61 to 1. The number of traders net-long is 0.58% higher than yesterday and 6.82% lower than last week, while the number of traders net-short is 21.01% higher than yesterday and 13.66% higher than last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests GBP/USD prices may continue to fall. Yet traders are less net-long than yesterday and compared with last week. Recent changes in sentiment warn that the current GBP/USD price trend may soon reverse higher despite the fact traders remain net-long.

What is your view on the British Pound – bullish or bearish?

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