Where we are: Cable is currently trading around 1.2680, recovering from overnight lows near 1.2650. The pair is oscillating above the 1.2670 level, which marks the 50-day moving average. This is a significant improvement versus Friday’s close, fuelled by today’s domestic CPI print, but remains well below the multi-month highs of 1.2740 seen last week.
What’s driving it: The primary driver for Sterling today is the cooler-than-expected UK inflation data. April’s CPI came in at 2.8% year-on-year, below both the forecast of 3.0% and the previous reading of 3.3%, triggering a paring back of BOE rate-hike expectations, and prompting a jump in Gilts. The market is now pricing in just two rate hikes by December. However, despite the dovish repricing, the Pound has staged a notable recovery reflecting a sentiment that the UK economy may have sufficient headroom to manage a slightly less restrictive monetary policy.
- UK CPI undershooting expectations at 2.8% YoY, the lowest since March 2025.
- Gilt yields sharply down on the back of the inflation print, as traders reassess the Bank of England’s policy path.
- CFTC data showing a moderately short Sterling position (-43,059 contracts) suggests limited room for further downside, potentially squeezing shorts.
NY session focus: The main event for the US session will be the release of the FOMC meeting minutes at 14:00 ET. While the minutes are likely to be backward-looking, any hawkish surprises could put downward pressure on Cable. Key levels to watch are resistance around 1.2700 and support at 1.2650. The short Sterling trade is now vulnerable to a squeeze. The pain trade is likely a rally through 1.2700, forcing shorts to cover and potentially testing higher levels towards 1.2750.