Pound rebound struggles to overcome bearish sentiment, multiple investment banks turn to pessimism

The GBP/USD exchange rate has recently fluctuated and declined. As of the latest quote, GBP/USD fell by 0.08% to 1.3227, despite briefly reaching a near-term high of 1.3269 intraday, but the upward momentum is clearly insufficient. In the eyes of market participants, this rebound is gradually being seen as a fleeting phenomenon.

Budget Effect Fades, Pound Loses Support

Morgan Stanley recently adjusted its stance on the pound. Strategist David Adams and others pointed out that the short-term rebound following the UK budget announcement will eventually come to an end. As the policy stimulus effects dissipate, the fundamental arguments supporting the pound begin to weaken — the currency’s correlation with the stock market has fallen to zero, and local drivers are severely lacking.

Investment banks openly state that the pound may only have this rebound as a hedge position closing opportunity, and the reasons to go long on GBP/USD will be extremely limited thereafter. From a technical perspective, the attractiveness of GBP/USD has clearly been damaged.

Can the Rate Cut Cycle Turn the Tide?

However, from a long-term perspective, there are still opportunities. Morgan Stanley believes that continued rate cuts by the Bank of England will release fiscal space and promote a recovery in consumption and investment. Once the rate cut cycle nears its end, can economic growth take over as the new support for the pound? If growth prospects improve, current pessimism may reverse.

But this hypothesis faces challenges. Jefferies economist Modupe Adegbembo pointed out that the UK’s structural fiscal fragility still exists, and the market is still digesting the pricing of out-of-control risks. This means that even if the central bank remains dovish, the pound’s decline is unlikely to fundamentally improve.

Bears Are in the Lead

Multiple investment banks share the same conclusion: the pound’s rebound momentum is short-lived, and further weakening is more likely. Until structural disadvantages are addressed, GBP/USD lacks long-term buying support, and market confidence in short positions remains relatively strong.