GBP came under pressure in early European trade, with Cable falling quickly from 1.6400 in to the 1.6350 region. The UK Telegraph reported that Barclays and RBS will need billions more in capital and this encouraged good selling by interbank names and short term leverage funds. Weak U.K. public finances also remain in focus after the NIESR warned of escalating U.K. debt interest payments in its overnight review. GBP shorts are looking for a Cable break of 1.6300 and an eventual EUR-GBP move through 0.8800-20, which should trigger follow through GBP supply. Meanwhile, today's BoE minutes will be of interest, with the Bank's Asset Purchase Scheme a talking point. If the BoE indicates that it could extend the program then GBP may see further headwind. Some see a Cable move on to a 1.62 handle as a precursor for another move on 1.6000, but the big picture story is still range bound trade. Cable shorts have tended to struggle due to broad dollar movement due to its link to risk appetite, which may see the crosses as a more sustainable source of GBP selling pressure.
Cable traded at 1.6312 lows as further supply went through amid market speculation that HSBC could issue a profit warning. There is little credence in the talk, but follows the earlier Telegraph article, which focused on additional funding at Barclays and RBS. HSBC were the source of speculation during Tuesday's European afternoon amid concern that the recent rally was overdone and the outlook remained fragile. HSBC's half-year results are due on August 3, where one-off items are expected to distort its underlying performance. For example, it's May rights issue, in USD 19 bln, will result in a loss on its income statement of USD 4.7 bln because of the way accounting rules deal with currency issues relating to fundraising. Elsewhere, the latest GBP sellers have tended to come from model funds after the earlier Cable breach of 1.6350, while GBP-JPY also drew in similar names through 153.00 and extended to 152.57 lows.
