Where we are: GBP/USD is currently trading at 1.3541, up a touch on the day, within a relatively tight intraday range of 1.3514-1.3551. Cable is struggling to make headway despite a slight uptick in UK gilt yields, and is holding just above the prior NY close.
What’s driving it: UK long-term borrowing costs hitting their highest level since 1998 has investors concerned about the UK’s fiscal outlook, capping Sterling’s upside. The BoE’s cautious stance, evidenced by the recent 8-1 vote to hold rates steady at 4.50%, adds to the uncertainty. A continued rise in yields and political instability fears risk further eroding Chancellor Reeves’s fiscal headroom. DXY strength, driven by a flight to safety amid geopolitical tensions, is adding additional pressure on Cable despite a strong risk bid in broader markets.
- UK 10Y gilt yields are up 5bp d/d to 5.090%, the highest since 1998, reflecting increased concerns about long-term borrowing costs.
- The Bank of England’s last decision on March 20th saw Dhingra dissent for a cut, highlighting the dovish undercurrent within the MPC, despite sticky services CPI.
- CFTC data shows crowded Sterling shorts, with net non-commercial positions at -60,639 contracts, near the 15th percentile, suggesting squeeze potential.
NY session focus: The market will be closely watching the 10:00 ET release of US ISM Services PMI and JOLTS Job Openings for cues on the US economy’s trajectory, which will influence the DXY and, in turn, Cable. Key levels to watch on the upside are intraday highs around 1.3551, with support around 1.3514. The current trade that’s working is fading rallies in GBP/USD, while the trade at risk is shorting Cable into a potential risk-on move sparked by weaker-than-expected US data. A hawkish surprise from US data would accelerate selling pressure on Cable, while a soft print could trigger a short squeeze. The pain trade for Sterling is a dovish repricing of BoE expectations amid a global growth slowdown.