Where we are: GBP/USD is currently trading around 1.2485, consolidating losses from the overnight session. The pair traded in a tight range overnight, failing to break above 1.2510 resistance. The price sits well below the prior NY close of 1.2520, reflecting the ongoing bearish sentiment.
What’s driving it: Sterling remains on the defensive after this morning’s mixed bag of UK data. While the Claimant Count Change came in slightly below expectations at 23.1K, signalling some tightness in the labour market, the Average Earnings Index held steady at 3.8%, failing to provide the dovish signal the BoE needs to justify a rate cut. The persistent stickiness of wages keeps the MPC in a holding pattern, as highlighted by the 8-1 vote at the last meeting where Dhingra dissented for a cut. Hawkish repricing in US yields is adding further pressure to Sterling as the 2-year yield sits above 4.09%.
- BoE Governor Bailey has repeatedly stressed the importance of services CPI in determining the future path of monetary policy, placing increased scrutiny on upcoming inflation releases.
- CFTC data shows net non-commercial GBP positions remain moderately short, but at the 35th percentile for the year, there is little risk of an imminent short squeeze.
- Worries on gilts, rising public debt, and increased hedge fund activity have sparked some vulnerabilities in the bond market, as reported by the FT.
NY session focus: The market will be closely watching the 10:00 ET release of US Pending Home Sales m/m, with expectations of a 1.0% increase. A strong print could further fuel dollar strength and pressure Cable lower, potentially testing support around 1.2450. Resistance remains around 1.2510. The current trade is short Cable on rallies toward 1.2500, while longs are at risk until we see a clear dovish shift from the BoE or a significant reversal in US yields. The pain trade for GBP/USD is a surprise downside print in US data that triggers a sharp dollar selloff and allows Cable to break above 1.2550.