GBP/USD Tests 1.2650 Support as Stretched Shorts Limit Downside

GBP/USD trades defensively near 1.2650, down 0.4% on the day, as sterling struggles amid UK economic uncertainty and dollar strength. Despite the bearish price action, heavily stretched short positioning in GBP may limit further downside, with CFTC data showing near-record net short positions among speculative traders. The pair faces immediate resistance at 1.2700 (50-day moving average), while support emerges at 1.2630 (November low). EUR/GBP has climbed to 0.8320 as the euro outperforms, while GBP/NOK shows resilience near 14.20 levels. Market positioning suggests any positive UK data surprises could trigger a sharp short-covering rally in sterling. However, with Bank of England rate cut expectations building and UK growth concerns persisting, the medium-term outlook remains challenging. Traders should watch for potential position squeezes above 1.2700.