FX Daily: The big GBP short unwinding continues
The desk maintains a bullish outlook on GBP as positioning shifts occur amidst a weakened USD landscape, driven by easing inflation pressures. Per the full note from ing-think, the ongoing unwinding of GBP shorts, alongside political changes such as Shabana Mahmood's potential role as chancellor, has contributed to the pound’s recent strength. Despite the dollar's soft PPI print showing a -0.3% month-over-month change, the overall market sentiment suggests limited further downside for the USD, particularly given geopolitical tensions points to higher volatility. The current consensus for GBP indicates a target of 1.3500, affirming its upward trajectory against the backdrop of diverging central bank policies.
What the desk is arguing
The desk frames this as a compelling GBP bullish scenario as significant short positions are being unwound in the currency. Recent positioning changes have resulted in sterling emerging as a key outperformer, with supportive factors including the political landscape and discouraging economic prints from the USD. Frantisek Taborsky and Francesco Pesole highlighted that political appointments could subtly bolster confidence in GBP, underscoring the currency's resilience.
Supporting this bullish view, the desk notes the dollar remains pressured after disappointing PPI and CPI data showed only muted inflationary pressures, with a core PPI print at just 0.2% month-over-month. The expectation is that the Fed will likely pause its hiking cycle unless a clearer disinflationary trend solidifies, which means tactical shifts in USD positions are essential to monitor going forward.
Where it sits in our coverage
Our current consensus for GBP places it at 1.3500, with a range mostly bounding around 1.2400 to 1.3800 based on several institutional outlooks. Key targets from notable firms include: - Goldman: Mar26 1.3300, Jun26 1.3500, Dec26 1.3600 - Scotiabank: Mar26 1.3607, Jun26 1.3738, Dec26 1.3800 - JPMorgan: Mar26 1.3700, Jun26 1.4100, Dec26 1.3600
This outlook is in line with cross-firm expectations which show a strong consensus around GBP's current price level for March 2026, with most firms projecting slight upward movement relative to the current spot. Notably, BOFA stands out with a more conservative target of 1.3400 for Mar26, positioning it on the lower end of the spectrum.
How other firms see it
A number of firms are aligned with our bullish GBP stance, including Goldman and JPMorgan, both anticipating appreciable gains over the coming months. Conversely, firms such as Citi show a more cautious approach, projecting lower targets that might not align with current bullish sentiments. This divergence reflects varying assessments of inflation dynamics and geopolitical influences.
Related currency pairs to keep an eye on include EUR/GBP, given the ongoing divergence in monetary policies influenced by ECB rates, as well as the USD/JPY, which will react alongside the Fed's decisions and broader dollar movements.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01GBP is experiencing a notable short squeeze alongside potential political boosts.
- 02The dollar remains under pressure due to lackluster inflation data.
- 03Market expectations show a consensus 1.3500 target for GBP with minimal downside.
- 04Monitor ECB dynamics that may impact GBP/USD trajectory.
Market implications
Traders should watch the upcoming U.S. retail sales data, set to be released soon, as it will provide further insights into consumer sentiment and potential impacts on the Fed's monetary policy. The level of 1.3500 for GBP/USD is critical, as any sustained breach could amplify bullish sentiment and target higher ranges above this threshold.
Risks to this view
The main risk to this bullish GBP outlook could stem from a sharp reversal in U.S. inflation data indicating sudden price pressures, which might prompt a more aggressive Fed policy response. Additionally, any escalation in geopolitical tensions could derail risk sentiment, adversely impacting GBP.
EUR/USD — All Desk Targets
| Firm | Stance | YE 2026 |
|---|---|---|
Bank of America | Bullish | 1.2200 |
ING | Bearish | 1.1300 |
UOB | Neutral | 1.1450 |
Articles FX Daily: The big GBP short unwinding continues Published 07:30 FX Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download The dollar stayed under pressure as PPI confirmed that inflation pressure eased in June. Still, with the Gulf situation apparently far from de-escalation, we don’t see much more USD downside potential in the near term. Instead, sterling is emerging as a major outperformer on the back of further positioning adjustments Frantisek Taborsky , Francesco Pesole and Chris Turner News that Shabana Mahmood could become Andy Burnham’s chancellor has boosted the pound USD: Losing more ground The dollar has remained under pressure, with FX volatility resuming its decline after a short-lived bounce earlier this week.
Brent settling at around $85/bl is seemingly not enough to drive inflation expectations much higher, and the USD front-end continues to feel some gravitational pull from soft June CPI data. PPI was also rather muted yesterday: -0.3% MoM for headline, 0.2% MoM for core. At the same time, the two-day testimony by Fed Chair Kevin Warsh and a speech by Chris Waller are warning markets against reading too much into one single inflation print.
According to Waller, the disinflationary trend must be visible over a few months to call off hikes. Hardly a guarantee now that oil prices have risen again. All in all, markets may remain content with one Fed hike priced in this year.
As some other central bank pricing catches up on the upside, the dollar might still be inching lower in most crosses. US retail sales for June are published today, and are expected to grow at 0.2% MoM after four very strong months. The Fed’s Logan and Schmid (both hawks) are scheduled to speak.
Francesco Pesole EUR: Rally should lose steam We aren't convinced this EUR/USD rally has much further to run, barring clear signs of a de-escalation in the Middle East. The rise in gas prices (more impactful for the eurozone's terms of trade than crude) should prevent the euro from building any idiosyncratic narrative at this point. We expect EUR/USD sellers to emerge around the 1.1500 area, and see a greater chance of rangebound stabilisation at this stage rather than a break higher.
The eurozone calendar is empty today, with the ECB entering its pre-meeting quiet period. Francesco Pesole GBP: Shorts on the run The sterling short squeeze continues. The catalyst for EUR/GBP to break below 0.8500 yesterday was reports that Shabana Mahmood would be Andy Burnham’s pick for chancellor when he likely comes to power next week.
Mahmood is seen to the right of the Labour Party and a less divisive – and potentially less fiscally expansive – candidate for chancellor than Ed Miliband. 10-year UK gilts outperformed German Bunds by around 5bp yesterday. The strength of the sterling rally looks more a function of position adjustment rather than a massive re-assessment of the prospects for UK PLC, however. Positioning data from US futures exchanges had recently shown speculators running the shortest sterling positions since 2017.
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