"We are now most focused on the USD and GBP for relative value opportunities

Rates markets have been persistently unwilling to increase pricing for Fed hikes since June, despite a fairly steady stream of hawkish comments from officials and strong labour market data. Our economics team continues to expect a rate hike in September, implying an adjustment higher in Fed pricing is likely in the weeks ahead. The Bank of England has had a run of upside surprises on key releases for August, and, as a result, the markets have scaled back expectations for further easing. Our economists expect data to be less robust going forward and still believes as its base-case scenario that the Bank is likely to deliver a further 15bp of rate cuts in November.

Market positioning has adjusted to reflect the shift in rate hike expectations for the BOE and the Fed, with cable short positioning recovering sharply from an extreme short position in July to only a modestly short position now. The short covering process could have further to run in the near term, but the lightening of positions should ultimately create opportunities for shorts.

Short GBPUSD is likely to be an attractive trade again as we move into autumn".

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