GBP faces pressure as BoE warns of sharp market correction risks

The Bank of England's Financial Policy Committee has issued stark warnings about potential sharp corrections in global financial markets, citing stretched AI valuations and concerns over Federal Reserve credibility. This cautionary stance has weighed on sterling sentiment, with GBP/USD trading defensively near 1.3050. The FPC highlighted that current market valuations appear disconnected from underlying fundamentals, particularly in technology sectors, creating vulnerabilities for risk-sensitive currencies. Additionally, questions about the Fed's ability to manage inflation while avoiding recession have increased market uncertainty. The warning suggests potential volatility ahead, which typically favors safe-haven currencies like USD and JPY over risk assets. Technical analysis shows GBP/USD approaching key support at 1.3000, with resistance at 1.3120. Traders should prepare for increased volatility as central bank credibility concerns could trigger rapid position unwinding across forex markets.