British Pound Soars to 3-Year High—But Traders Brace for the Inevitable Crash

The pound's rally hits a wall of skepticism—no one believes this party lasts.

Sterling's sugar rush

Three years of dormancy shattered as GBP punches upward. Charts flash green, headlines scream—but the smart money's already hedging.

The institutional shrug

Hedge funds quietly load up on puts while retail traders FOMO in. Classic 'buy the rumor, sell the news' setup unfolding—with extra Brexit trauma baked in.

Currency markets doing what they do best: getting overexcited before reality bites. Place your bets—the house always wins.

The shadow of 2022 still lingers

Paul Jackson, who leads asset allocation research at Invesco, tied the pound’s current position to its crash in 2022 under Liz Truss. Her disastrous “mini budget” sent the pound and UK government bonds into freefall. Paul said the currency is still on a long climb back from that event.

He agreed with Janet that most of this year’s pound strength isn’t really about the UK—it’s about the dollar faltering. He pointed to the fact that even with its gains against the greenback, the pound is sliding against the euro at the same time. That contrast makes it harder to argue that the pound is seeing genuine global demand.

Looking ahead, Paul expects the same pattern to play out over the coming months. As the U.S. economy slows and investors remain skeptical of Trump’s fiscal and tariff policies, he thinks the dollar will weaken even more.

At the same time, he expects the euro to inch up, especially if Germany manages to roll out its anticipated fiscal stimulus. He added that the European Central Bank has probably finished most of its monetary easing for now, while both the Federal Reserve and the Bank of England still have a lot left to do in that area.

Paul’s twelve-month forecast puts GBP/USD at 1.40, a roughly 2.9% increase from its current rate. Against the euro, he sees it sliding a bit to 1.15. That WOULD still be a strong level compared to where the pound was during the Truss era, but it suggests the currency isn’t going to explode higher anytime soon either.

Short-term outlook depends on UK economic momentum

Janet isn’t convinced the pound can rise much more this year. “In the near-term, further upside for the pound may be limited due to softer UK economic momentum and more scope for the Bank of England to cut rates,” she said.

So while the pound might stay elevated for now, it’s not necessarily heading toward new highs. She did say the currency could get a boost if UK-EU relations improve, especially if that leads to solid, long-term agreements. But there’s no timeline for that happening, and geopolitics remain unstable.

Brian Mangwiro, investment manager at Barings, is even less optimistic. He flat-out said he’s bearish on the pound, projecting EUR/GBP to hit 0.875 and GBP/USD to fall to 1.30 within the next six months. 

That would represent a reversal of most of the pound’s recent gains. Brian believes the UK economy’s fundamentals don’t justify the pound’s current price. He said the rally is more of a reaction to a mass dollar sell-off than it is a reflection of strong UK performance.

Brian pointed out that after Chancellor Reeves’ budget, markets turned very negative on the UK. Because of that, any small positive surprise in economic data ended up giving the pound a temporary lift. But that trend is fading fast. Growth and inflation in the UK are already weakening, and the Bank of England has acknowledged it. That clears the path for more rate cuts, which would drag the pound lower.

He also brushed off the idea that the world is ready to dump the U.S. dollar entirely. In his view, de-dollarization talk has been exaggerated. He expects the U.S. economy to rebound, supported by strong corporate earnings, and that would bring traders back to the dollar.

Brian warned that current sentiment might flip quickly, and that could hit the pound hard. “Along with current extreme short USD positioning, this should support a USD rebound, dragging Cable lower,” he said.

So while the pound is currently riding high, the ground underneath it is shaky. It’s being lifted by outside forces, and if those reverse, the rally could fade just as quickly as it came.

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