Sterling weakened against the dollar, down 0.3% versus USD, yet held up better than most G10 peers as markets repriced Federal Reserve expectations and yield spreads moved against the UK. With few fresh UK releases, the slide was also linked to softer domestic yields following a moderation in inflation, alongside a contractionary services PMI print.<\/p>\n
In GBP\/USD, near-term technicals remained bearish. The RSI sat at 30, at the oversold threshold, and the spot move pushed through the prior 2026 low, leaving limited support before 1.30. Scotiabank flagged minor resistance above 1.3250, while pointing to a near-term range of 1.3100\u20131.3200. The article was produced using an AI tool and edited before publication.<\/p>\n
We are seeing the Pound soften against the dollar, and this trend looks set to continue over the next few weeks. This is mostly because the market now expects the Fed to keep its policy tight, especially after US jobs data from early June showed continued strength in the labor market. In contrast, the UK’s economic picture is looking less certain.<\/p>\n
UK yields have been weakening, taking away a key support for the GBP. The drop in UK inflation to 2.1% last month, combined with the recent services PMI reading of 49.8 which indicates a contraction, suggests the Bank of England has little reason to be aggressive. This growing difference between UK and US interest rate expectations is making the dollar a more attractive currency to hold.<\/p>\n
Given the bearish technical setup, we are considering strategies that would benefit from a move toward the 1.3000 level. Buying GBP\/USD put options with an August expiry and a strike price around 1.3100 would be a direct way to position for further weakness. This allows us to profit from a downward move while capping our maximum loss to the premium paid.<\/p>\n
Alternatively, because the RSI shows the pair is oversold, a period of range-trading between 1.3100 and 1.3200 is also a possibility. Selling an iron condor with strikes centered outside this range would be a suitable strategy to collect premium if the pair consolidates. For example, selling the 1.3250\/1.3300 call spread and the 1.3050\/1.3000 put spread could generate income from low volatility.<\/p>\n
It is important to remember the sharp declines the Pound experienced back in 2022, which shows how quickly momentum can build. While we do not anticipate that level of volatility, the break of the year’s prior low is a significant signal. We will be closely watching for any further deterioration in UK economic releases as a trigger for a faster move down.<\/p>\n\n\n\n