We published an article earlier in the week looking for the GBP to fall but it has not fallen but moved strongly to the upside and we are coming to major resistance and looking to sell into it and have changed our short entry.

In terms of the GBP, it's moved up strongly today: “Pound Sterling rose after the UK's GDP rose more than expected in May, lessening the odds of an interest rate cut on August 1.” (PS LIVE) the ONS reported UK GDP rose 0.4% month-on-month in May. This more than doubled the consensus estimate for 0.2% growth while eclipsing April's flat 0% reading. The growth came from services, the largest sector of the UK economy, where output grew by 0.3% in May 2024.

Interest Rate Differentials 

We don't think the above is the reason at all as GDP is lagging data – the rise in the GBP was due to the weak US CPI today which now forecasts a September rate cut which is now priced in with another probable cut for December.

The two most hawkish MPC members, Jonathan Haskel and Catherine Mann, warned this week about the risks of easing too early which was to be expected. Chief Economist Huw Pill’s comments this week mattered more due to the fact he is a more accurate benchmark for consensus within the MPC committee. Pill’s comments stressed the persistence and upside risks in services inflation, casting doubts about an August cut.  The market’s dovish bets have been trimmed after his comments and now only 14bp priced in for the August BoE meeting, and just 47bp in total for the year.

So we have a September cut for the Fed priced in and an Agust rate cut getting priced out for the BoE as the GBP has surged higher.

Bank of England

0.4% growth is not great, the consumer is under pressure and the Bank of England will cut rates in August to help the economy and relief pressure on the consumer with inflation and wage growth moderating.

The fundamentals aside it's the extreme sentiment that makes us so bearish.

Sentiment

Below are the COT Net Traders Positions from last Tuesday and with the rise in the GBP we think the positions will be at a record long which historically has seen a big break to the downside in GBP USD. See COT Net Traders Positions below and our comments.

Technical Analysis

Our view of the key technical levels of support and resistance to look out for are below.