GBP: What can drive the next leg lower? GBP: What can drive the next leg lower? GBP: What can drive the next leg lower?

GBP: What can drive the next leg lower?

Forex 4 minutes to read
Charu Chanana

Head of FX Strategy

Summary:  Sterling is the worst performer on the G10 board against the US dollar month-to-date. Bank of England Deputy Governor Ramsden’s comments on Friday fuelled speculation that the UK central bank could be getting more comfortable with the inflation outlook and could cut rates by June. Market is still pricing only 60% chance of a rate cut by the BOE in June, which could see a dovish shift if PMIs come in below expectations or more BOE speakers turned dovish.

Last Friday, Bank of England’s Deputy Governor Dave Ramsden noted that the risks to UK’s inflation outlook were “tilts to the downside”, while also being “more confident” that inflation persistence is easing. This has fuelled speculation that the central bank may be starting to lean dovish in its stance on interest rates and could be laying the groundwork for a June rate cut.

The MPC’s February forecasts had suggested that UK inflation could fall briefly back to the 2% target in H1 before rising back to around 3% in H2. This led to the market pricing in an August rate cut for the BOE, assuming they would want to move after hitting the 2% inflation target. However, with indications that inflation could hit the 2% target earlier rather than later, there may be reasons for the market to re-assess what has been priced for the BOE rate curve. 

Source: Bloomberg

    As seen in the above chart, market is currently pricing in a 60% chance of a June rate cut from the BOE compared to a 70% chance of a rate cut from Bank of Canada in June and an 80% chance of a rate cut from the ECB in June. Ramsden also noted that UK CPI has fallen below the US and is converging with the Euro-area inflation, as shown in the chart below. If these trends were to be maintained, market will be aligning the expectations for BOE more to the ECB that is expected to cut rates in June, rather than the Fed.

Source: Bloomberg

Meanwhile, the Commodity Futures Trading Commission's (CFTC) weekly Commitments of Traders (COT) report showed that up until the week of April 19, the positioning in sterling is still net long despite a pullback in recent weeks.

This means GBP could be vulnerable in the coming weeks, and we would keep the following data and events on the radar.

  1. PMIs – Eurozone and UK activity surveys for April are scheduled for release today. UK composite PMI bottomed out in September and was rising until February which prompted an easing in recession fears. However, March composite PMI receded to 52.8 from 53.0 in February. While the index is still in expansionary territory, further drops could induce growth slowdown fears and prompt rate cut speculation.


  2. Dovish BOE comments – More BoE members will be on the wires today as well. Jonathen Haskel speaks at 0800 GMT and Chief Economist Huw Pill will be live at 1115 GMT. Both have previously signalled concerns over lingering inflationary pressures and any shift in the tone could be a key signal.


  3. Equity sentiment – Sterling has also shown high correlation to equity risk sentiment in recent times. After the sell-off on Friday in US technology stocks, sentiment is fragile heading into the big earnings week. Any further sell-offs in equity market could be a drag on GBP.


  4. US exceptionalism: Continued signs of US exceptionalism and inflationary pressures could be evident in the GDP and PCE reports out from the US this week. If further USD strength comes through, GBP could be more vulnerable than some of the other G10 currencies given its still-long positioning and scope for dovish repricing.


  5. Yen or yuan intervention: Any possible threat of intervention from Japan or China remains a significant risk for our bearish sterling view, especially if the intervention is coordinated and succeeds in turning the dollar lower more sustainably than past attempts.


Key levels to watch

GBPUSD tested the 1.23 handle on Monday but it was rejected. A break below 1.23 will bring the focus on 76.4% fibo retracement level at 1.2239.

GBPJPY continues to find support around the 50DMA at 190. March low of 188 remains in focus.

EURGBP has seen a sharp surge to cross over the 200DMA around 0.86 level. YTD high of 0.8683 in focus, and support at 0.86.


Other recent Macro/FX articles:

23 Apr: Global Market Quick Take - Asia
22 Apr: Weekly FX Chartbook: Stretched USD strength is raising intervention alert
19 Apr: FX 101: Using FX for portfolio diversification
18 Apr: JPY: Intervention alert, or a BOJ alert?
16 Apr: Chinese Yuan’s Double Whammy - Dollar Strength and Yen Weakness
12 Apr: Riding the Fed-ECB Policy Divergence
11 Apr: ECB rate decision: How to trade the event
9 Apr: CAD vulnerable as market underprices dovish Bank of Canada risks
9 Apr: US inflation report: How to trade the event
8 Apr: Macro and FX Podcast: NFP, CPI, ECB and Japan
3 Apr: Chinese yuan bears are undeterred by PBoC’s grip
3 Apr: FX Quarterly Outlook: The rate cut race shifts into high gear
22 Mar: Swiss National Bank’s bold move will kickstart the G10 rate cut cycle
20 Mar: Thematic Podcast: Japan's route to abolish negative interest rates
20 Mar: Japan’s exit from negative rates: Implications for the economy, yen and stocks
14 Mar: FOMC vs. BOJ: Who moves the Yen?
12 Mar: Dampening equity sentiment could test GBP resilience
6 Mar: Bitcoin fever is running high, again
28 Feb: Navigating Japanese equities: Strategies for hedging JPY exposure
23 Feb: Nvidia momentum spills over to FX markets
15 Feb: Swiss Franc’s bearish view gets more legs
14 Feb: Sticky US inflation could make dollar strength more durable
9 Feb: Japanese Yen is throwing a warning
8 Feb: FX 101: USD Smile and portfolio impacts from King Dollar


Saxo Capital Markets (Australia) Limited prepares and distributes information/research produced within the Saxo Bank Group for informational purposes only. In addition to the disclaimer below, if any general advice is provided, such advice does not take into account your individual objectives, financial situation or needs. You should consider the appropriateness of trading any financial instrument as trading can result in losses that exceed your initial investment. Please refer to our Analysis Disclaimer, and our Financial Services Guide and Product Disclosure Statement. All legal documentation and disclaimers can be found at

The Saxo Bank Group entities each provide execution-only service. Access and use of Saxo News & Research and any Saxo Bank Group website are subject to (i) the Terms of Use; (ii) the full Disclaimer; and (iii) the Risk Warning in addition (where relevant) to the terms governing the use of the website of a member of the Saxo Bank Group.

Saxo News & Research is provided for informational purposes, does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. No representation or warranty is given as to the accuracy or completeness of this information. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. No Saxo Bank Group entity shall be liable for any losses that you may sustain as a result of any investment decision made in reliance on information on Saxo News & Research.

To the extent that any content is construed as investment research, such content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication.

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments.Saxo Capital Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Capital Markets or its affiliates.

Please read our disclaimers:
- Full Disclaimer (
- Analysis Disclaimer (
- Notification on Non-Independent Investment Research (

Saxo Capital Markets (Australia) Limited
Suite 1, Level 14, 9 Castlereagh St
Sydney NSW 2000

Contact Saxo

Select region


The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit

Saxo Capital Markets (Australia) Limited ABN 32 110 128 286 AFSL 280372 (‘Saxo’ or ‘Saxo Capital Markets’) is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms, Financial Services Guide, Product Disclosure Statement and Target Market Determination to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Saxo Capital Markets does not provide ‘personal’ financial product advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Capital Markets does not take into account an individual’s needs, objectives or financial situation. The Target Market Determination should assist you in determining whether any of the products or services we offer are likely to be consistent with your objectives, financial situation and needs.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc.

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website is not intended for residents of the United States and Japan.

Please click here to view our full disclaimer.