GBP/USD's rally on news that President-elect Donald Trump had chosen investor Scott Bessent for Treasury secretary has encountered resistance above 1.26 near the daily tenkan line by 1.2622, which could highlight downside risks.
Sterling's rise from Friday's 7-month low at 1.2475 was driven by market perceptions that Bessent, if confirmed, could be a fiscal conservative and possibly favor less stringent tariffs than assumed of the incoming administration, leading to an unwind of some recent Trump-related trades.
Technically, sterling's support below 1.25 may hold. After a decline of more than 7% from the Sept. 27 high of 1.3434 to Friday's low, speculative short positioning has decreased to 61.4k contracts, levels not seen since mid-September.
Meanwhile, longs -- though they have been dwindling recently -- remain at +101.7k contracts.
However, significant Trump-related uncertainty will remain a key issue as year-end and the Trump's January inauguration approaches.
In these circumstances, it would not be surprising to see sterling longs reduce positions.
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(Paul Spirgel is a Reuters market analyst. The views expressed are his own)
((paul.spirgel@thomsonreuters.com))
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