Sterling has slid further after Tuesday’s US CPI reinforced a more hawkish Federal Reserve narrative, pushing bulls to capitulate and testing late-October lows below 1.33.

With the cash Treasury market closed for Veterans Day, FX traders are not taking direction from US rates. Treasury futures are slightly lower across the curve, and US equities are higher, which has kept the US dollar slightly bid.

Recent USD direction has been driven by shifting Fed expectations. Since the October 28 decision, a 10-2 vote with two dissenters seeking a 25bp hike, rate expectations have moved higher after the payrolls and CPI releases.

Futures price a 25bp hike in December, and some speculate on 50bp.

The bigger shift in rate expectations is in mid-2027, where LSEG’s IRPR currently indicates 75bp of Fed tightening as early as September 2027. That has prompted traders to reload USD longs, which had fallen nearly 29% from late-July highs . Volatility in AI and tech stocks, including Nvidia’s security and leadership issues, is adding to USD demand on a haven basis.

Sterling’s drubbing may be reaching oversold status. Oil has fallen more than 20% since October 26, which should eventually pull inflation lower, if Middle East tensions stay contained. Further, inflation is not a US-specific problem, and developed-market policy paths are converging, which argues against an outsized move in any single currency if rate expectations hold.

Technically, GBP/USD has support at the October 16 and 28 lows of 1.3268 and 1.3274. A break below 1.3268 opens a test of 1.3137, the October 14 low tied to French fiscal concerns. Bulls need to clear 1.3389, the 50% Fibonacci retracement of 1.3503-1.3276, to regain momentum.
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(Paul Spirgel is a Reuters market analyst. The views expressed are his own)