The Pound Sterling is holding steady against the US Dollar despite recent declines. Market expectations for Bank of England rate cuts have softened, with a 25bps reduction anticipated by August 7 and a further easing reduction by year-end recently reduced by 5bps.
The latest CFTC data shows a change in GBP sentiment, with a shift from a $2.4 billion net long position to a neutral stance. Technically, the GBP appears vulnerable as recent lows dipped below mid-July support levels, hinting at a possible trend shift. A move towards 1.34 would stabilise the view, while fresh lows towards 1.33 would indicate a bearish shift.
Market Overview
Elsewhere, EUR/USD remains down below 1.1550, recovering after touching 1.1500 following US data. GBP/USD is testing support at 1.3300 as strong USD buying continues amid anticipation for FOMC and NFP events. Gold sees limited gains, stalling at $3,330 per ounce amid cautious sentiment before the Fed’s rate decision. Ethereum reaches a year-to-date high, approaching $4,000, driven by strong institutional demand with ETFs gaining 1.6 million ETH in recent weeks.
The Federal Reserve’s decision to delay rate cuts faces scrutiny due to tariff uncertainties and economic resilience, though delayed action may expose weaknesses in the labour market.
The British Pound’s apparent stability is misleading, and we see its vulnerability growing ahead of the Bank of England’s August 7th meeting. With the market now pricing in a 25-basis-point rate cut, the path of least resistance appears to be lower for the currency. The latest Commitment of Traders report confirmed this sentiment shift, showing non-commercial positions decreasing by over 30,000 contracts, the largest single-week drop this year.
Given this backdrop, we believe traders should view any rallies toward the 1.3400 level as opportunities to initiate bearish positions. A decisive break below the 1.3300 support level, which has been tested multiple times this month, would likely trigger further selling. Put options with a late August expiry could be an effective way to position for a potential decline while capping risk.
US Dollar Dominance
The dominant theme remains US Dollar strength, driven by anticipation for this week’s Federal Open Market Committee meeting and Non-Farm Payrolls data. Fed funds futures are currently pricing in less than a 10% chance of a rate cut before November, reflecting the economic resilience noted by policymakers. Historically, the dollar index has rallied an average of 1.2% in the two weeks leading into such hawkishly-perceived meetings.
This environment is creating a significant headwind for gold, which is struggling to overcome resistance at $3,330 per ounce. The primary pressure comes from rising U.S. 10-year real yields, which climbed back above 2.0% this week, increasing the opportunity cost of holding the non-yielding asset. We would advise against establishing large positions in the metal until after the central bank provides clearer guidance.
In stark contrast, Ethereum continues to show remarkable strength, breaking through to new year-to-date highs. The 1.6 million ETH accumulated by spot ETFs in recent weeks represents over $6 billion in net inflows, confirming that institutional capital is the primary driver of this rally. The options market reflects this optimism, with the 25-delta risk reversal skew showing a persistent and heavy bias towards call options over puts.
