Where we are: GBP/USD trades at 1.3422, down a touch (-0.04%) after a relatively quiet overnight session with a range of 1.3368-1.3431. Cable remains below yesterday’s NY close despite a weaker DXY. The near-term picture is skewed towards further downside without a hawkish catalyst. The 1.3400 level is key for near-term direction.
What’s driving it: The dominant driver continues to be the growing expectation of a Bank of England rate cut, as reflected by Dhingra’s dissenting vote at the last meeting. The market increasingly believes the BoE will be forced to ease, regardless of the MPC’s cautious stance, especially if upcoming data confirm the downside trend in inflation and wages. While the UK 2s10s curve remains relatively steep at +58bp, any flattening would signal a greater conviction in earlier BoE easing. The weaker DXY, currently at 99.13, is providing limited support to Cable.
- Dhingra’s persistent call for cuts, bucking the wider MPC consensus, is fuelling dovish speculation.
- April’s CPI figures, while still above target, showed a significant drop from previous levels, reinforcing expectations of further disinflationary pressure.
- Speculative positioning remains heavily short GBP, at the 15th percentile, suggesting a potential squeeze higher on any positive surprise.
NY session focus: Today’s US data deluge at 08:30 ET, including Core PCE, GDP, and Unemployment Claims, will be crucial for setting the tone. Strong US numbers could further pressure Cable by widening the US-UK 10Y yield spread (-37bp currently). A break below 1.3400 opens the door to a test of the overnight low at 1.3368, while a rally above 1.3431 targets 1.3450/60. The trade at risk is short GBP/USD given deeply negative positioning, while a dovish BoE repricing is the working theme. The pain trade is a surprise hawkish shift from the BoE pushing Cable back above 1.3500.