Where we are: GBP/USD currently trades at 1.3606, up 0.26% on the session, testing the upper end of its intraday range of 1.3570-1.3616. Cable has shrugged off earlier weakness in European equities to maintain a bid, though the DXY remains largely flat. The pair is attempting to break higher from Friday’s close, with the 1.3620 level representing immediate resistance.
What’s driving it: The primary driver for Sterling remains domestic, with a modest steepening of the UK gilt curve supporting the currency. The UK 10Y yield has edged up to 5.001%, a 7bp rise, reflecting some recalibration after last week’s dovish repricing following the BoE’s hold. While the central bank is holding rates at 4.50%, the 8-1 vote split (Dhingra dissenting for a cut) highlights the internal debate; markets are sensitive to any indications of a shift in the MPC’s cautious, data-dependent stance.
- The upward move in the UK 10Y yield (+7bp) is outpacing the US 10Y (+0.2bp), narrowing the US-UK 10Y spread to -61bp, a tailwind for GBP/USD.
- Speculative positioning remains crowded short GBP, with net non-commercial positions at -63,908 contracts (15th percentile), increasing squeeze risk on any further positive surprises.
- The drop in UK unemployment to 4.9% (as of January) continues to support the view that the labour market remains relatively tight, making the BoE more hesitant to cut rates aggressively.
NY session focus: The primary focus for the New York session will be any read-across from US data on the UK outlook. Traders should watch for reactions to incoming releases, specifically for how the data influences the dollar and risk sentiment. Key levels to watch are 1.3570 as intraday support and 1.3620 as immediate resistance; a break above the latter could open the way to 1.3650. The working trade is buying dips in Cable against the backdrop of short positioning. The pain trade for GBP/USD is a hawkish repricing of Fed expectations combined with a deterioration in UK economic data.