Synopsis:
HSBC warns that GBP/USD is overbought based on interest rate differentials and futures positioning. While the BoE maintains policy flexibility, recent gains in sterling may be difficult to sustain, especially if dovish signals emerge or market sentiment turns risk-off.
Key Points:
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BoE policy stance remains cautious, aiming to preserve optionality amid elevated global uncertainty.
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GBP/USD appears overbought based on:
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Interest rate differentials – GBP has risen beyond what spreads imply, diverging from typical risk-off behavior.
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Futures positioning – Net longs in GBP are elevated, though not yet extreme.
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Dovish BoE messaging, if delivered, could limit GBP upside.
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Risk sentiment dynamics still favor USD in flight-to-safety episodes, potentially dragging GBP lower.
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GBP/EUR underperformance likely, as EUR benefits more from structural demand and risk rotation.
Conclusion:
HSBC sees limited upside for GBP/USD, expecting the pair to trade sideways in the near term and gradually lose ground to the euro. With positioning stretched and policy risks tilted dovish, sterling may struggle to maintain its recent momentum.
