Traders who propelled the pound to its strongest week of the year now face uncertainty as they await the next inflation report.
Even if inflation rates exceed expectations, concerns linger that economic strains may hinder the currency’s performance.
Options market pricing indicates a growing readiness to sell, and traders are trimming their most bullish positions in five years.
Despite investors rushing to secure higher returns due to accelerating inflation, there are worries that the pound may suffer regardless of the interest rate’s height.
Strong inflation coupled with weaker growth could be detrimental to the currency, as explained by David Adams, head of G10 FX strategy at Morgan Stanley.
Recent UK inflation data has consistently surpassed expectations, leading to speculations of the Bank of England raising rates faster than other developed nations.
However, with US inflation falling short of forecasts, pressure mounts for the pound to retreat, evident in currency strategists’ analysis and market positioning.