GBP/USD skidded lower as the USD staged a surprisingly strong rebound late in the London session. Dealers blame profit-taking accelerating after prices once gain stalled in the 1.9870/75 region overnight. The loss of 1.9805 New York lows sent many former cable longs to the sidelines, dropping prices to the 1.9789 level before stabilizing.
A full retracement of yesterday's rally to the 1.9750 area is the near-term risk for cable. On the fundamental front, the MPC"s forecast to a return to 2% CPI levels over the next two-years has undermined cable as it relies on an interest forecast of 5.70%, only 20 bp above present levels. Timing of the next hike from the BOE has grown murky now that inflation has receded back below the 3% danger zone.
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