BUZZ-COMMENT-Sterling set for worst start to a year since 2015

Jan 2 (Reuters) - A very weak start to the year for GBP/USD as the pair trips through the Q4 2024 lows around 1.25 to now trade below 1.24 and quickly close in on the 2024 trough at 1.23. Should cable close the session at current levels (1.2370) it would mark the weakest start to the year since 2015, where the pair fell 1.40%.

While the direction of travel can be justified by the dominant themes around a hawkish Fed, U.S. exceptionalism and tariff risks remaining intact, the magnitude of move hints at lower volumes exacerbating the price action.

This may set up for a more interesting APAC session as volumes are often lighter than during the European and U.S. session.

With GBP/USD now marginally above its 2024 low, risk/reward chasing the pair lower appears unfavourable. Though, equally, attempting to fade the move would be equivalent to catching a falling knife.

Given it is the start of the year, views are likely to be weakly held as traders’ performance returns are reset to flat. In turn, skittish price action across FX may well ensue in the first few weeks.

The key focus is on whether the Trump administration deliver aggressive tariffs on Day 1 or look to phase in tariff hikes, the latter of which could prompt a modest pullback in the dollar.

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(Justin McQueen is a Reuters market analyst. The views expressed are his own.)

((justin.mcqueen@thomsonreuters.com))