Where we are: GBP/USD is trading around 1.2715, testing the upper end of its recent range. Overnight, Cable held a tight 1.2680-1.2720 range, and currently sits about 20 pips above Friday’s New York close. The 1.2750 level remains a key technical hurdle, with strong resistance expected there.
What’s driving it: Sterling is finding support from a steepening gilt curve as markets continue to digest the latest UK inflation data. While the headline CPI figures showed welcome moderation, the persistence of services inflation and resilient wage growth are keeping the Bank of England in a hawkish holding pattern for now. This is manifesting as increased steepening in the gilt curve. Any further hawkish re-pricing in Gilts would push Cable higher; conversely, a dovish tilt would present downside risk. The rise in US 10Y Real Yields to 2.18% offers limited headwind to the Pound given the relatively higher yields available in the UK and the ongoing hawkish stance of the BOE.
- BoE vote split 8-1 underscores the MPC’s reluctance to cut rates prematurely, a signal markets may be underpricing
- The 2s10s gilt spread steepened by 6bp on Friday, reflecting expectations for delayed BoE easing.
- Crowded GBP shorts (15th %ile) leave Cable vulnerable to a squeeze on any positive surprises.
NY session focus: There are no major UK data releases scheduled today, so Cable will likely trade with a US-centric bias, particularly around risk sentiment and dollar flows. Watch for movement in US Treasury yields and the DXY for cues. Key levels to watch are 1.2680 as initial support and 1.2750 as resistance. The squeeze on GBP shorts remains a compelling trade, but a break below 1.2650 would invalidate the near term bullish thesis. The pain trade is a decisive break above 1.2750, triggering a wave of short covering.