Sterling's fall below the 1.3620 support area suggests bullish sentiment for the pound is facing a key test as late-summer market liquidity dries up and the Fed's Jackson Hole Symposium looms.

GBP/USD is still holding above the crucial 1.3600 big-figure support level, but repeated failures to sustain gains in the mid-1.36s and the inability to break past Friday's six-month high of 1.3675 could signal a capitulation among sterling bulls.

Even with the pound's 3% climb from its July 28 low below 1.33, net speculative short positioning in the IMM futures has only marginally decreased, moving from -64.8k contracts to -54.6k by August 18, indicating the bullish phase may be transitory.

While evolving Fed-BoE policy expectations have recently leaned in sterling's favor, with futures markets pricing in similar hiking paths for both central banks by 2026, a more hawkish UK rate rate outlook for 2027 has offered some support to the pound.

This narrative, however, might lose its impact when traders return from summer holiday. Persistently high oil prices, without a clear path to U.S.-Iran peace or increased oil flow from the Strait of Hormuz, are likely to delay the disinflationary trend and, consequently, influence the timing of policy adjustments by both the Fed and BoE.

Elevated fiscal concerns in the U.S. and UK remain a factor. While the change in UK leadership initially eased some British fiscal worries, the Autumn Budget in October looms over sterling's outlook.

GBP/USD finds support at 1.3600, below which bears may target the rising 10-day moving average at 1.3586.

Otherwise, cable bulls may be hoping for a dovish statement from Fed Chair Kevin Warsh at Jackson Hole to renew their push above the recent high of 1.3675 and bring the February 11 high of 1.3712 into focus. However, without a decline in U.S. inflation expectations, a dovish stance from Fed policymakers more broadly appears unlikely.
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(Paul Spirgel is a Reuters market analyst. The views expressed are his own)