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The Pound to Australian Dollar exchange rate's ongoing selloff has legs to run, according to a leading currency strategist.

W. Brad Bechtel, Global Head of FX at Jefferies, has been a seller of GBP/AUD over recent days and says the release of UK inflation readings that undershot expectations by a wide margin bolsters the trade.

UK bonds rallied, and yields fell, taking GBP lower across the board after inflation read at 3.9% year-on-year in November, well below expectations for 4.3%.

"The market now prices March for the first rate cut," says Bechtel.

At the start of December, the first cut was only priced for August of next year, confirming a significant repricing in UK rate expectations that has weighed on the Pound.

"GBP/USD is back to 1.2656 but it's the crosses that continue to look appealing," says Bechtel.

"We went short GBP/AUD, EUR/AUD, GBP/CAD and EUR/CAD after last week's Fed pivot and those pairs are all breaking lower now with the UK inflation print pushing them further overnight," he notes.

The Pound-Australian Dollar exchange rate has now fallen some 6.35% from its August highs, with a period of consolidation in the September-December period finally giving way to a renewal of the post-August downtrend.

Bechtel admits his EUR/CAD and GBP/CAD positions were looking "a bit sticky at first with Macklem's rate cut talk," but the Canada inflation figures were enough to give pause to that idea, at least temporarily.

Heading through the final trading days of 2023, these positions can continue to deliver, says Bechtel.

Above: GBPAUD at daily intervals, showing the recent break through support. Track AUD with your custom rate alerts. Set Up Here.

"I like adding to these trades as I see them continuing to accelerate to the downside as we head into Q1 2024 both on the idea that the BoE and ECB will have to pivot sooner than later and on the idea that pro-cyclical currencies that were beaten up for the bulk of last year should finally start to claw back some of those losses," he says.

In addition, positioning in the likes of AUD and CAD is assessed as still being quite short, "and that will help fuel this move".