GBP/USD found support ahead of 1.27 on Tuesday, but the early rise, and fall below its 3-month low at 1.2719 suggests traders remain wary of dollar-strengthening post-U.S. election trades despite a slight pound-positive UK rate advantage.

Sterling holds a 0.15% gain year-to-date and GBP longs must decide whether to maintain positions based on rate fundamentals or capitulate to the prevailing post-election climate of higher U.S. yields based on President-elect Donald Trump's expected protectionist and budget policies.

Since election day, GBP/USD has dropped 2%, indicating early sentiment favors sterling weakness. IMM positioning shows a halving of GBP speculative longs since early October, with further declines likely.

U.S. CPI data, which showed inflation rates coming in as expected -- though still above target -- led to lower U.S. yields across the curve, slightly boosting GBP/USD momentarily, possibly due to profit-taking on recent Trump trades.

For now, support at Tuesday's 1.2719 low is being tested, and given the less-dovish Fed expectations and U.S. political and fiscal uncertainty, a further exodus of GBP longs and a test of early August lows by 1.2666 and July lows just above 1.26 is not out of the question, given prevailing long USD accumulation. For more click on

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(Paul Spirgel is a Reuters market analyst. The views expressed are his own)

((paul.spirgel@thomsonreuters.com))