Where we are: GBP/USD is trading at 1.3448, effectively unchanged on the day, pinned between intraday lows of 1.3431 and highs of 1.3460. Sterling’s range has been exceptionally tight, echoing the subdued mood in broader FX markets. We’re trading a touch firmer than yesterday’s New York close, but struggling to gain momentum beyond immediate resistance.
What’s driving it: The Bank of England’s cautious stance continues to dominate sentiment. With the last decision holding rates at 4.50% and a dissenting vote for a cut, the market remains hesitant to fully price in aggressive easing. The MPC’s data-dependent approach, coupled with still-sticky services CPI (near 5%) and resilient wages, keeps the pressure on Sterling. Sarah Breeden’s speech today on modernising money and markets offered little in the way of immediate monetary policy hints, but reinforces the Bank’s focus on financial stability.
- The UK 2Y yield is down 3bp on the day to 4.255%, reflecting some mild dovish repricing, but the 2s10s curve remains steep at +57bp, suggesting the market still sees longer-term growth potential.
- Speculative positioning remains crowded short GBP, at the 15th percentile, suggesting a squeeze could materialise on any positive surprises.
- UK CPI data released last month showed a significant drop, with core CPI falling to 2.5%, yet the labour market is still not showing signs of giving way, further complicating the BoE’s task.
NY session focus: With no major UK data releases scheduled for today, the focus will remain on broader risk sentiment and dollar dynamics. We will be monitoring US yields closely; the US 10Y is currently at 4.468%. The 08:30 ET US data releases will be closely scrutinised, and a soft print could provide some modest support to Cable, albeit tempered by the BoE’s own caution. Look for a break above 1.3460 to trigger a squeeze of existing shorts. The pain trade for GBP/USD is a sustained move above 1.3500, forcing shorts to cover aggressively.