GBP/USD inter-markets: scope for a test of 1.2796?

GBP/USD is accelerating its leg lower today, coming down from monthly peaks in the vicinity of 1.3400 the figure (August 3) and posting gains in only two sessions so far this month.

The selling bias in GBP has been particularly accelerating since the Bank of England has decided to loosen its monetary stance, lowering its benchmark rate by 25 bp and incrementing its asset purchase facility by £60 billion to £435 billion.

Adding to the bearishness around the Sterling, speculative net shorts remained in record levels (beyond 90K contracts) in the week ended on August 9, according to the latest CFTC report.

Somehow limiting (or slowing down) Cable’s downside, yields in UK money markets are trading in a ‘sea of green’ across the curve and ahead of key releases this week: July’s CPI (Tuesday), labour market figures (Wednesday) and retail sales (Thursday).

All in all, and against the current weak backdrop, GBP/USD remains poised for another test of the sub-1.2800 area (July’s 31-year low) followed by the mid-1.2700s, 78.6% Fibo of the 1985-2007 move.