Sterling looks vulnerable to a near-term drift lower as it consolidates below 1.36, with bulls paring recent longs while liquidity thins ahead of end-of-summer holidays and markets adjust to a more hawkish Fed narrative following Chair Kevin Warsh's Jackson Hole debut.

In the immediate 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 as a dovish Fed lean — after the recent rate hold and softer U.S. data — took hold. Those dovish tones have cooled markedly in the run-up to, and after, Warsh's Friday's speech, which was interpreted as hawkish and nudging rate expectations higher, to sterling bulls' detriment.

Beyond the Fed noise, other rate stimuli tilt hawkish. With the U.S.–Iran Memorandum of Understanding an increasingly distant memory, oil's climb from near $60/bbl into the $80s risks prolonging global inflation and stoking second-round effects; weekend U.S.–Iran hostilities have lifted crude further, reinforcing high-for-longer fears. Short-term futures suggest the Fed and BoE stay on parallel paths through 2026. Further out, the post-Warsh rise in the 3-month SOFR strip may stall GBP/USD gains as U.S.–UK rates converge.

With central bankers noting the data will be decisive, markets will be looking ahead to U.S. payroll data on September 4, followed by U.S and UK CPI data on September 11 and 16 respectively for clues to Fed and BoE policy paths heading into year-end.
GBP Chart:

(Paul Spirgel is a Reuters market analyst. The views expressed are his own)