Hedge-fund selling has hurt the Pound-Dollar, but JPMorgan thinks further month-end weakness could leave Pound Sterling ripe for a rebound.
The British Pound to Dollar exchange rate (GBP/USD) faces support at 1.3145-1.3160 after heavy hedge-fund selling, although JPMorgan’s desk is becoming wary of chasing Sterling lower.
Writing on Friday, the desk described Thursday’s flows:
“[Pound] Sterling remains a victim here and was the top sold G10 currency in the DHF sector yesterday”
The observation reflects discretionary hedge-fund activity seen by JPMorgan’s desk.
GBP/USD subsequently closed Friday at 1.3246, up 0.27% on the day but still around 1.1% lower over the week.
The bounce followed Sterling’s retreat to three-month lows as Fed tightening expectations strengthened.
JPMorgan’s next support lies roughly 86-101 pips below that close.
The desk also sees pressure against the Euro:
“we see the cross continue to mount a sustained challenge on this 0.8600/10 pivot which if cleared will see 0.8650 as the next level, for cable the next support remains 1.3145/60.”
A move higher in EUR/GBP means a weaker Pound, making 0.8600-0.8610 a separate test of Sterling’s resilience.
Month-end selling could stretch the decline
JPMorgan links some of Sterling’s vulnerability to concerns over a potential US diesel export ban, which it sees as more damaging for the UK than continental Europe.
Republican lawmakers called for export restrictions earlier in the week as US fuel costs climbed.
The desk doubts a ban will proceed and is watching whether month-end flows exaggerate Sterling’s losses:
“sterling is getting to some pretty beat up levels so if month end stretches it further I may put the fading hat on still a few days to go yet but let’s see.”
Fading the decline would mean looking for a rebound after further selling, with JPMorgan’s willingness to do so still conditional.
Our currency coverage draws on live market data, official economic releases and published bank research.
