Weak UK GDP data weighed on the pound ahead of a pivotal week that includes jobs data, CPI and a potential Bank of England (BoE) cut. While markets are still below easing and pointing to an upside for EUR/GBP next year, extremely bearish GBP positions increase the risk of a sharp short squeeze on any positive surprise, notes Chris Turner, FX analyst at ING.
A Bank of England cut looms this week
“Weak October UK GDP data on Friday weighed on the pound. Looking ahead, it’s a big week for UK data, central bank policy and the pound. Ahead of the Bank of England’s expected interest rate cut on Thursday, we’ll see jobs data (including a slowdown in private sector wage growth) and the November CPI release. Regarding the latter, headline inflation should fall, but core and services CPI should remain steady at 3.4% and 4.5% YoY sequentially.”
“A rate cut by the Bank of England this Thursday is priced at just 85% probability. Dovs like us at ING expect Governor Andrew Bailey to cross the Rubicon and help bring about a 5-4 vote to cut rates to 3.75%. Then we are looking at another 50 basis points of easing in 2026 – the main reason we see EUR/GBP rising to 0.90 next year.”
“However, one of the main threats to sterling bears is positioning. Asset managers are currently running some of their shortest sterling positions in over a decade. Any positive surprises could be met with an extreme short squeeze on sterling. We expect to hear about some asset managers buying cheap upside protection for sterling, such as out-of-the-money euro put options.”
