Where we are: GBP/USD currently trades at 1.3611, up 0.50% on the session, after printing a session high of 1.3643. Cable has outperformed in early trading, boosted by a rally in gilts and broad risk-on sentiment. This move sees the pair testing levels not seen since mid-February. Intraday support sits near 1.3540, previous day’s low.
What’s driving it: UK domestic focus centres on the recent pullback in gilt yields, evidenced by the 12bp drop in the UK 2Y yield to 4.358%. This decline could be a reaction to the upcoming local elections and associated political uncertainty flagged by the FT, although broad risk appetite is proving to be the stronger force this morning. While the Bank of England held rates steady at 4.50% at their last meeting, the 8-1 vote split underscores the possibility of a dovish shift at the next meeting on May 8th, particularly if upcoming data softens. The current risk-on environment, reflected in a weaker DXY at 97.79 and rallying US equities, is also contributing to the Sterling bid.
- The 12bp drop in UK 2Y gilt yields suggests a recalibration of rate expectations ahead of the May 8th BoE meeting.
- CFTC data shows a crowded short positioning in GBP, with net non-commercials at -60,639 contracts, placing it in the 15th percentile. This creates a squeeze risk on any positive Sterling catalyst.
- The FTSE 100’s 1.95% rally to 22914 this morning indicates strong risk appetite which is spilling over into the currency markets.
NY session focus: The US session will likely hinge on the 08:15 ET ADP Non-Farm Employment Change release. A weaker-than-expected print could further pressure the USD and boost Cable, while a stronger number might trigger a Sterling pullback. Watch for follow-through in gilt yields if ADP misses; a continued rally there should offer good support for GBP/USD. Key resistance sits near the intraday high of 1.3643, with a break opening up a test of 1.3700. The working trade is long Cable on dips, especially if supported by further USD weakness, while a reversal below 1.3540 would negate the bullish bias. The pain trade for Cable is a hawkish surprise in the ADP, triggering a sharp USD rebound and a Sterling washout given its crowded short positioning.