Sterling’s August Gains Evaporate in Three Weeks
Remember when sterling was the market’s favorite currency? That was three weeks ago.
GBP/USD has collapsed from 1.3552 at the start of September to 1.3229, erasing the entire August rally and then some. The speed of the reversal is a textbook lesson in why relative-value stories are only as good as the regime they live in. The pound’s UK rate advantage didn’t disappear — but in a market aggressively buying dollars, carry differentials are a poor parachute.
The sequence, replayed
First, the yen shock dented risk appetite and started broad deleveraging. Then US data firmed, reviving the dollar bid. Then sterling’s own buyers — who had ridden the pound from 1.31 to 1.36 — took profits into the chaos, and momentum sellers did the rest. None of this required a UK-specific catalyst, and none arrived. That’s what makes it brutal: the pound got sold for reasons entirely beyond its control.
There is one domestic wrinkle worth watching. Market-implied odds of a BoE cut before year-end have jumped in the past fortnight as UK data softened. If Thursday’s PMIs confirm the slowdown, the “high carry” pillar of the sterling story starts wobbling at exactly the wrong moment.
Levels
1.3210–1.3211 has been tested repeatedly over the past week and held so far. That’s the last meaningful support before 1.3143 (the June low) and then 1.3000 — a level sterling hasn’t seen since early 2025. On the topside, 1.3389 (last week’s breakdown) is now resistance.
For what it’s worth, sterling’s fundamentals — rates, valuation, positioning — are less bad than the price suggests. But “less bad” is cold comfort when the tape is this one-sided. Wait for the selling to exhaust before being a hero.
Disclaimer: This is market commentary, not investment advice. FX trading carries substantial risk of loss.
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