Though GBP/USD has regained the 1.25 handle, prospects for further weakness remain elevated.

Sterling continued its drift lower, slipping to 1.2475 in early European trade after weak UK flash PMI and retail sales data added to the pound's recent Trump-related and geopolitical woes.

The pound's slide from its late-September high of 1.3434 high came amid less dovish Fed rate expectations following the Fed's super-sized 50bp initial cut in early September. The slide picked up steam after Fed Chair Jerome Powell downplayed expectations for faster and deeper rate cuts, awaiting data to inform policy.

Some UK-centric stimuli have also stoked GBP/USD bearish expectations, including the UK budget. More recently, soft economic data is likely to lead to lower UK rates, potentially sapping the pound of its remaining vigor.

Globally, rising geopolitical risks and the return of President-elect Donald Trump has ushered in a round of dollar buying, exerting more pressure on the pound.

As traders begin curating positions before year-end, the current GBP spec long is likely to unravel, putting the May 9 low at 1.2446 and 2024 low on April 22 at 1.2299 in sharp focus.

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

((paul.spirgel@thomsonreuters.com))