GBP/USD Slips as Hawkish Fed Narrative Takes Hold

The British pound has become vulnerable to a short-term decline as it consolidates below $1.36, according to eFXdata.

This is due in part to the shift in the Federal Reserve's narrative following Chair Kevin Warsh's speech at Jackson Hole, which was seen as hawkish and nudged rate expectations higher.

The dovish tone that had previously been prevalent has cooled significantly since Warsh's speech, which has had a detrimental effect on sterling bulls.

In the short term, however, the seasonal dearth of liquidity may cushion sterling, as entrenched shorts trim exposure rather than risk being chopped up in illiquid conditions. GBP/USD shorts have been cut by nearly 20% over the past three weeks, with the pound rallying off late-July lows near $1.3275.