The currency is on track for its biggest weekly drop of the year after the Bank of England laid the groundwork for a shift to interest-rate cuts, torpedoing a view among traders that the UK central bank would take longer than its peers in Europe and the US to act.
“The risks of a prolongation of the short squeeze look high,” said Roberto Cobo Garcia, head of G-10 FX strategy at Banco Bilbao Vizcaya Argentaria SA in Madrid. “With the BOE poised to cut sooner than expected, and with stretched positioning and valuations, the trend may have started to revert.” Earlier this year, expectations were euro-area and US policymakers would act sooner and deliver more cuts. Now, the amount of easing priced in for the BOE — about 80 basis points — is widely in line with what’s seen coming from the Fed. Bets are slightly more aggressive for the ECB, at around 90 basis points.