Where we are: GBP/USD currently trades at 1.3621, up 0.52% on the day, trading near the top of its intraday range of 1.3547-1.3624. Cable has caught a solid bid during the European morning, extending gains from yesterday’s close above 1.3550. The pair is testing levels not seen in over two months as Sterling outperforms against the backdrop of easing political concerns and softer UK yields.
What’s driving it: Sterling is finding support from a rally in UK gilts after local election results showed that Prime Minister Starmer’s Labour Party losses were less severe than feared. This has eased some political uncertainty that had been weighing on the currency. While the Bank of England held rates steady at 4.50% at the last meeting, the market is still pricing in some tightening by year end, giving the Pound a bid on any sign of political stability. The US 10-year yield falling to 4.357% is also applying downward pressure on the Dollar, supporting GBP/USD.
- UK 2-year gilt yields are down 8bp on the day, signalling a softening in near-term rate expectations post-election results.
- Net non-commercial GBP positioning remains crowded short at -60,639 contracts, representing the 15th percentile of the 52-week range, suggesting squeeze potential if the current bullish trend continues.
- The Market Participants Group meeting minutes released this morning show the BoE is actively engaging with market participants on relevant themes, signaling their sensitivity to market sentiment.
NY session focus: The key event for the session will be the US jobs data at 08:30 ET, where the market is expecting Non-Farm Payrolls of 65k and an Unemployment Rate of 4.3%. A weaker-than-expected print could send US yields lower and fuel further GBP/USD upside, potentially targeting 1.3650. A strong print, however, could see Cable retrace towards 1.3580. Later at 13:20 London, keep an ear on any remarks from BOE Gov Bailey, in case it introduces any Sterling volatility. The pain trade for GBP/USD is a sustained break above 1.3650, triggering a significant short squeeze.