Last week’s newspaper interview with Bank of England Governor Andrew Bailey – in which he opened the way to ‘a bit more aggressive’ easing – triggered a substantial unwinding of stretched GBP net longs, which amounted to 37% of open interest on 1 October, according to CFTC data, ING’s FX analyst Francesco Pesole notes.

Few more upside risks for the USD

“Chief Economist Huw Pill offered GBP a lifeline on Friday as he warned against cutting too aggressively, but markets are now likely on the lookout for any slight drop in data to price in more easing in the Sonia curve. At the moment, markets factor in 22bp of cuts for November and another 17bp for December, meaning there is some more room for a dovish repricing.”

“However, the data calendar is not particularly busy in the UK this week and only includes monthly GDP and industrial production figures for August. The bulk of market-moving releases is next week, with jobs data on the 15th and the CPI report on the 16th.”

“EUR/GBP has already halved its post-Bailey gains, and we think the pair may stabilise or slip back toward 0.830 before next week’s UK data. We have seen a nice directional move towards our near-term target of 1.300 in Cable. As we see a few more upside risks for the dollar and given that markets may be more inclined to price in BoE cuts after Bailey’s comments, we stick to that call even if the pair might find some modest support in the coming days.”